01—Abstract
Summary
Summary of the 10-K filed February 14, 2020. Cited figures are marked; the original filing is the authoritative source.
Arista Networks, Inc. (ANET) reported strong performance in its 2019 fiscal year, marked by significant revenue growth driven by increased demand across its customer base, particularly from large internet companies.
The company continues to solidify its position in cloud networking with its software-driven solutions, including its Extensible Operating System (EOS) and CloudVision platform. Arista's strategic expansion into campus networking, bolstered by the acquisition of Mojo Networks, also contributed to its growth trajectory. While facing competitive pressures and occasional demand volatility from major clients, the company demonstrated resilience through its innovative product development and a focus on expanding its addressable market.
The financial results highlight Arista's ability to deliver robust revenue growth while managing operating expenses effectively, positioning it for continued success in the evolving networking landscape. Key financial highlights for 2019 include a substantial increase in revenue, driven by both product and service segments. The company maintained healthy gross margins despite pricing pressures, indicating strong execution and product differentiation.
Investments in research and development remain a priority, supporting Arista's commitment to innovation and its leadership in software-driven networking solutions. The company's strong cash generation and balance sheet provide flexibility for future growth initiatives, including potential acquisitions and continued investment in its technology and market expansion strategies.
02—Key points
Key Highlights
- Arista Networks generated $2.41 billion in revenue for the fiscal year 2019, a 12.1% increase year-over-year.
- Product revenue grew by 9.8% to $2.02 billion, while service revenue saw a significant jump of 25.6% to $389.6 million, indicating strong customer adoption and continued support.
- Gross margin improved slightly to 64.1% from 63.8% in the prior year, demonstrating Arista's ability to navigate pricing pressures in a competitive market.
- Research and development expenses increased by 4.6% to $462.8 million, reflecting continued investment in innovation and product development, a key strength for the company.
- Sales and marketing expenses rose by 14.3% to $213.9 million, supporting Arista's efforts to expand its market reach and customer base.
- The company ended the year with a strong liquidity position, holding $2.7 billion in cash, cash equivalents, and marketable securities.
- Two major customers, Microsoft and Facebook, each accounted for over 10% of total revenue in 2019, highlighting significant customer concentration.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Arista Networks, Inc. kept $0.36.
- Revenue$2.41B100.0%
- Cost of revenue−$866.4M35.9%
- Gross profit$1.54B64.1%
- Operating costs−$738.6M30.6%
- Operating income$805.8M33.4%
- Interest, other & tax$54.1M2.2%
- Net income$859.9M35.7%
Where FY2019 revenue went
$2.41B- Cost of revenue: $866.4M, 36% of revenue
- Operating income: $805.8M, 33% of revenue
- R&D: $462.8M, 19% of revenue
- Other operating costs: $275.8M, 11% of revenue
Kept 33% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 14, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.41B$2.15B | +12.1% |
| Cost of Revenue | $866.37M$777.99M | +11.4% |
| Gross Profit | $1.54B$1.37B | +12.4% |
| R&D Expenses | $462.76M$442.47M | +4.6% |
| Operating Expenses | $738.56M$1.10B | −32.9% |
| Operating Income | $805.77M$273.35M | +194.8% |
| Net Income | $859.87M$328.12M | +162.1% |
| EPS (Basic) | $0.70$0.27 | +156.9% |
| EPS (Diluted) | $0.67$0.25 | +162.1% |
| Shares Outstanding (Basic) | 1.22B1.20B | +2.1% |
| Shares Outstanding (Diluted) | 1.29B1.29B | 0.0% |
05—Questions
Frequently Asked Questions
What are Arista Networks' primary products and services?
Arista Networks specializes in software-driven cloud networking solutions. Their core offerings include their Extensible Operating System (EOS), a suite of network applications, and Ethernet switching and routing platforms. These solutions are designed for large-scale data center and campus environments, emphasizing performance, scalability, automation, and visibility. They also offer services like Post Contract Customer Support (PCS).
What is Arista's strategy for growth?
Arista's growth strategy focuses on continuing to develop market-leading products and features that address customer needs, expanding sales to new and existing customers, and increasing market share in the enterprise data center switching, campus, and WiFi networking markets. They plan to achieve this by expanding their sales force and marketing activities, strengthening partnerships, and investing heavily in research and development to enhance their cloud networking platform and introduce new innovations.
What are the key risks Arista faces?
Arista faces several risks, including the rapid evolution of the cloud networking market, potential declines in revenue from a limited number of large customers (e.g., Microsoft and Facebook), intense competition from established vendors like Cisco, and potential supply chain disruptions due to reliance on component suppliers and contract manufacturers. Additionally, adverse economic conditions and changes in technology trends pose significant risks.
How did Arista perform financially in 2019 compared to 2018?
In 2019, Arista's total revenue increased by 12.1% to $2.41 billion. Gross profit increased by 12.4% to $1.54 billion, resulting in a gross margin of 64.1%, a slight improvement from 63.8% in 2018. Operating expenses were significantly lower in 2019 compared to 2018 due to a large legal settlement charge recorded in 2018 ($405 million). This resulted in income from operations of $805.8 million in 2019, a substantial increase from $273.3 million in 2018. Net income also saw a significant increase, reaching $859.9 million in 2019 compared to $328.1 million in 2018.
06—Continue