Arista Networks released its Q3 results on Halloween and the aftermath of the earning call spooks the investors. It announced a strong results after a weaker guidance given in Q2 due to the delay in order from one of its cloud titan which is believed to be Microsoft. Revenue and non-GAAP net income are up 16% and 21% over the previous year. Not phenomenon but definitely a strong performance after its Q2 guidance.
So what spooked the investors?
In its earning call, CEO Jayshree Ullal shared that there will be a sudden softening in Q4 results. This is due to its second cloud titan Facebook which now take up more than 10% of its revenue, dramatically reducing their original projections for Q4 and 2020. As such, the company decided that the cloud titan forecast should be modeled as flat to down in calendar 2020.
One positive from the earning call, is the growing success in our very first quarter of shipping cognitive campus portfolio products. However, this segment is still small and probably will not be able to mitigate the drop in demand from its cloud segment.
ANET shared dropped by 24% on Friday and closed at US$185%. My average purchased price is US$257 and am now sitting on a loss of about 29% for the counter. The good news is that it only occupies about 4% of my portfolio, so the impact is minimized.
I am tempted to add more as I still believe in the management and the long term outlook of the company. However, with a lower visibility for its cloud segment for 2020, I must be mentally prepared for further downgrading in the coming year.
I have decided to wait for another week or two before taking any action.
Trick or Treat?
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