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Arista Networks Is Back On Its Feet, But Recovery Has Already Been Priced Into The Stock

Apr. 08, 2021 8:39 AM ETArista Networks, Inc. (ANET)
Gary Alexander profile picture
Gary Alexander


  • Arista shares have recovered after a difficult 2020, and have strong upward momentum.
  • Arista returned to growth in Q4, achieving 17% y/y growth after declining -11% y/y in Q3.
  • As companies and particularly IT departments return to investment mode, Arista may benefit from deferred purchases in 2021.
  • However, Arista's ~31x forward P/E ratio already appropriately prices the stock for its improving performance.
  • I do much more than just articles at Daily Tech Download: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Though most technology companies benefited tremendously from pandemic-related tailwinds and increased internet usage in 2020, Arista's (NYSE:ANET) 2020 was a completely different story. Frozen investment cycles, paused IT budgets and a re-prioritization of IT departments to focus primarily on enabling remote work hurt sales of Arista hardware dramatically last year. But in Arista's most recent fourth quarter, we can begin to see the light at the end of the tunnel, with the company returning to growth and showing hope for recovery in 2021.

Shares of Arista have already baked in a good deal of optimism. Though most tech stocks are down for the year, Arista is trading near 52-week highs and is up ~9% year-to-date.

As a reminder for investors who are less familiar with this stock, Arista made a name for itself by making and marketing cloud-native networking products. Its products like routers and switches boast higher performance and much higher ratings from tech analysts like Gartner than its primary rival Cisco (CSCO), which for many years was the dominant incumbent in the networking hardware market. Arista's CEO of nearly 15 years, Jayshree Ullal, even served a stint as a top lieutenant of former Cisco CEO John Chambers before defecting to Arista.

Overall, Arista estimates its TAM to reach $33 billion by 2025 (so at the company's current $2.3 billion revenue scale, the company still has ~93% of its available market up for grabs). Year after year, Arista's lead in the networking market over Cisco continues to grow, as shown in the chart below:

Figure 1. Arista market shareSource: Arista Q4 investor presentation

Recovery in 2021 will help to illustrate if Arista can continue to cement its lead. For Q1, Arista has guided to an impressive $630-650 million in revenue, representing 20-24% y/y growth (versus 17% y/y growth in Q4), and far above the $608.1

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This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

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