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Summary

  • Santa Clara-based ANET, provider of cloud networking solutions, plans to raise $199.5 million in its upcoming IPO.
  • ANET has expertly managed rapid revenue growth, converting growth to immediate profitability and increasing its end-use customers substantially.
  • We recommend the ANET IPO as a Buy, despite strong competitors and tricky situation for tech investors.

Arista Networks, Inc (NYSE:ANET), a provider of cloud networking solutions, with principal offices in Santa Clara, California, plans to raise $199.5 million in its upcoming IPO.

The firm will offer 5.3 million shares at an expected price range of $36-$40 per share. If the IPO can reach the midpoint of that range at $38 per share, ANET will command a market value of $2.8 billion.

Filing, Underwriting Details

ANET filed on March 31, 2014.

Lead Underwriters: Citigroup Global Markets Inc; Morgan Stanley & Co. LLC

Underwriters: Barclays Capital Inc; BofA Merrill Lynch; Cowen and Company, LLC; Credit Suisse Securities (USA) LLC; Deutsche Bank Securities Inc; JMP Securities LLC; Needham & Company, LLC; Oppenheimer & Co., Inc; Pacific Crest Securities LLC; Raymond James and Associates, Inc; RBC Capital Markets, LLC; Stifel Nicolaus & Company, Incorporated; The Juda Group; Wells Fargo Securities, LLC; William Blair and Co., L.L.C

Second Largest Market Share in 2013

ANET provides cloud networking solutions to Internet companies, enterprise data centers, and cloud service providers.

The firm's solutions are made up of a group of network applications that ANET has collectively christened the Extensible Operating System (EOS) and its 10/40/100 Gigabit Ethernet switches.

ANET accounted for the second largest 2013 market share in data center 10/40/100 Gigabit Ethernet switch ports.

The firm's EOS platform is fully programmable, allowing ANET to continuously create new software applications to support cloud networking and to integrate its platform with third-party applications. ANET and third-party developers have designed EOS applications for functions including network visibility, workflow automation, analytics, virtualization, automation, and network services. EOS also supports leading solutions like Vmware NSX, Microsoft System Center, and Openstack.

Valuation

ANET offers the following figures in its S-1 balance sheet for the three months ended March 31, 2014:

Revenue: $117,207,000.00

Net Income: $12,329,000.00

Total Assets: $375,463,000.00

Total Liabilities: $279,035,000.00

Stockholders' Equity: $96,428,000.00

ANET has experienced rapid revenue expansion over the past several years; in 2010, 2011, 2012 and 2013, the firm posted revenues of $71.7 million, $139.8 million, $193.4 million and $361.2 million, respectively. Over the same periods, ANET posted net incomes of $2.4 million, $34.0 million, $21.3 million and $42.5 million, respectively.

Strong, Well-Financed Competition

ANET faces competition from other equipment and system vendors, many of which are established firms with access to far greater financial resources than ANET.

Major competitors include Cisco Systems, Inc (NASDAQ:CSCO), Brocade Communications Systems (NASDAQ:BRCD), Juniper Networks (NYSE:JNPR), Dell, and Hewlett-Packard (NYSE:HPQ).

Solid Management

President and CEO Jayshree Ullal has served in her current positions since 2008.

Before joining ANET, Ms. Ullal served in various roles with Cisco Systems, Inc. for a period of nearly 15 years. She has also worked in various engineering and product positions with firms including Ungermann-Bass, Fairchild Semiconductor, and Advanced Micro Devices, Inc.

Ms. Ullal received a B.S. in Engineering (Electrical) from San Francisco State University and an M.S. in Engineering Management from Santa Clara University.

Conclusion

We rate this IPO a buy within the proposed range.

ANET has proven its ability to expertly manage its rapid revenue growth and immediately convert that growth into increasing profits.

ANET's end-customer base has grown from approximately 570 on December 31, 2010 to approximately 2,500 on March 31, 2014; the firm has gained extremely attractive customers including Barclays, Morgan Stanley (NYSE:MS), Citigroup (NYSE:C), eBay (NASDAQ:EBAY), Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:FB), Yahoo! (NASDAQ:YHOO), AOL (NYSE:AOL), ESPN, Netflix (NASDAQ:NFLX), Comcast (NASDAQ:CMCSA), and Rackspace (NYSE:RAX).

As cloud networking continues to grow in popularity, ANET should be well-positioned to continue its meteoric rise to success, despite the recent tough environment for tech companies.

We suggest investors get a piece of ANET at its IPO.

We invite readers wishing to join the discussion on recent IPOs to click the +FOLLOW button above the title of this article and follow @DRDInvestments on Twitter.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ANET over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Arista Networks IPO Could Hit The Clouds