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Summary

  • ANET is a leading supplier of cloud networking solutions that uses software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation data centers for enterprises,.
  • ANET has a history of profitability and actually has $53 million in retained earnings, a definite rarity for high revenue growth IPOs.
  • Top line revenue for 2013 vs. 2012 grew 87% to $367 million while profits increased 99% to $42 million.
  • Q1 '14 revenue vs. Q1 '13 revenue increased 91% to $117 million while profits grew 86% to $12 million.

Based in Santa Clara, CA, Arista Networks (NYSE:ANET) scheduled a $200 million IPO on the NYSE with a market capitalization of $2.43 billion at a price range midpoint of $38 for Friday, June 6, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint Managers: Morgan Stanley, Citigroup, BofA Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank, RBC Capital Markets

Co-Managers: Wells Fargo Securities, Cowen, JMP Securities, Needham, Oppenheimer, Pacific Crest Securities, Raymond James, Stifel, The Juda Group, William Blair.

End of lockup (180 days): Wednesday, December 3, 2014

End of 25-day quiet period: Tuesday, July 1, 2014

Summary

ANET is a leading supplier of cloud networking solutions that uses software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation data centers for enterprises, based on market share.

ANET has a history of profitability and actually has $53 million in retained earnings, a definite rarity for high revenue growth IPOs.

Top line revenue for 2013 vs. 2012 grew 87% to $367 million while profits increased 99% to $42 million.

Q1 '14 revenue vs. Q1 '13 revenue increased 91% to $117 million while profits grew 86% to $12 million.

Based on annualizing Q1 '14 profits, the P/E is 50.

Valuation

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1 '14

Arista Networks

$2,432

5.2

50.7

6.5

6.5

8%

SCORECARD

Mgt

Market

Market Do-

Proprie-

Total

1-5, 5 is high

Grwth

mination

tary

rating

20 is perfect

2.5

2

2

1.5

C+, 8

Conclusion

The rating on ANET is buy.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

ANET is a leading supplier of cloud networking solutions that uses software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation data centers for enterprises, based on market share.

ANET's cloud networking solutions consist of its Extensible Operating System, or EOS, a set of network applications and ANET's 10/40/100 Gigabit Ethernet switches.

ANET's cloud networking solutions deliver industry-leading performance, scalability, availability, programmability, automation and visibility.

2nd largest market share

Since ANET began shipping its products, it has grown rapidly, and, according to Crehan Research, ANET has achieved the second largest market share in data center 10/40/100 Gigabit Ethernet switch ports, excluding blade switching, sold in 2013.

COS cloud networking platform

At the core of ANETs' cloud networking platform is EOS, which was purpose-built to be fully programmable and highly modular.

The programmability of EOS has allowed ANET to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility and analytics, and has also allowed ANET to rapidly integrate with a wide range of third-party applications for virtualization, management, automation, orchestration and network services.

Supports leadingcloud and virtualization solutions

EOS supports leading cloud and virtualization solutions, including VMware NSX, Microsoft System Center, OpenStack and other cloud management frameworks.

ANET has worked with industry leaders to define new open protocols for the virtualized data center.

ANET co-authored the VXLAN protocol specification with VMware (NYSE:VMW) and was the first to demonstrate VXLAN integration. ANET also co-authored the NVGRE protocol specification with Microsoft (NASDAQ:MSFT) and support integration with Microsoft's System Center.

Uses standard Linux

ANET uses standard Linux as its underlying operating system, providing customers with access to all Linux operating system facilities.

This allows customers to extend ANET's EOS software with off-the-shelf Linux applications and a growing number of open source management tools.

Modular

EOS has a highly modular architecture, which allows ANET to prevent network outages in deployments of its cloud networking solutions.

This architecture also allows ANET to rapidly develop new features and protocols without compromising the quality of the existing code base.

Because all of its switching products are powered by the same binary image of EOS, ANET is able to deliver these new innovations to its entire installed base with minimal disruption.

Dividend Policy

No dividends are planned.

Intellectual Property

As of March 31, 2014, ANET had 28 patent applications pending in the United States and two patents granted in the United States, which expire in 2025 and 2028.

Competition

ANET competes with large network equipment and system vendors, including Cisco Systems (NASDAQ:CSCO), Juniper Networks (NYSE:JNPR), Brocade Communications Systems (NASDAQ:BRCD), Hewlett-Packard (NYSE:HPQ) and Dell.

5% stockholders

  • The 2010 David R. Cheriton Irrevocable Trust 24.73%
  • The Bechtolsheim Family Trust 21.95%
  • The 2000 Ullal Trust dated February 15, 2000 7.24%
  • Jayshree Ullal 13.33%
  • Andy Bechtolsheim 22.66%

Use of proceeds

ANET expects to net $182 million from its IPO. Proceeds are allocated as follows:

  • The prepayment of the Singtel Innov8 Pte. Ltd subordinated convertible promissory note. ANET intends to use $23.6 million of the net proceeds it receives from this offering to prepay the principal and accrued interest of the Singtel Innov8 Pte. Ltd subordinated convertible promissory note.
  • The remaining net proceeds for general corporate purposes, including working capital, sales and marketing activities, product development, general and administrative matters and capital expenditures, although ANET does not currently have any specific or preliminary plans with respect to the use of proceeds for such purposes.

Disclaimer: This CNCE IPO report is based on a reading and analysis of CNCE's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Arista Networks