Arista Networks stock falls as 'cloud titan' demand from Microsoft, Meta expected to moderate

By Wallace Witkowski

Arista Networks Inc. shares slipped further in the extended session Monday after the cloud-network company's said one of its biggest growth drivers could slow down after reporting that quarterly results and outlook both topped Wall Street estimates.

Arista (ANET) shares fell 7% after hours, following a flat day in the regular session to close at $160.16.

On the call, Jayshree Ullal, Arista Networks chief executive, told analysts that the company's outsized growth in the U.S. was primarily due to spending from "cloud titans," or customers like Microsoft Corp. (MSFT) and Meta Platforms Inc. (META).

That, however, was followed up by a warning that spending could slow in that crucial area.

"We expect some moderation in customer spending, especially with our cloud titan customers following a year of accelerated demand in 2022," said Ita Brennan, Arista's chief financial officer, on the call with analysts.

On the call, executives said visibility into demand from cloud titans has become foreshortened. Subtracting the past two years where supply-chain difficulties brought on by the pandemic have altered the market, visibility was typically two quarters, executives explained. Over those two years, however, because of the supply-chain snags, visibility from those customers grew out to four quarters. Now that lead times are shrinking and the supply chain is improving, that visibility has once again contracted to about six months, the company said.

The company reported first-quarter net income of $436.5 million, or $1.38 a share, compared with $272.3 million, or 85 cents a share, in the year-ago period. Adjusted earnings were $1.43 a share, compared with 84 cents a share in the year-ago period.

Revenue rose to $1.35 billion from $877.1 million in the year-ago quarter.

Analysts surveyed by FactSet had forecast earnings of $1.35 a share on revenue of $1.31 billion, based on Arista's forecast of $1.28 billion to $1.33 billion.

The company said it expects second-quarter revenue between $1.35 billion and $1.4 billion, while analysts forecast revenue of $1.35 billion.

Arista shares finished Monday up 32% year to date, while the S&P 500 index has gained 8.6% and the tech-heavy Nasdaq Composite Index is up 16.7%.

-Wallace Witkowski

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-02-23 0750ET

Copyright (c) 2023 Dow Jones & Company, Inc.