Arista Networks Tops $3 Billion in Revenue as Growth Reaccelerates
Arista Networks posted its first $3-billion-plus quarter, with revenue climbing 12.1% sequentially as the networking-equipment maker raised its next-quarter forecast well above the guidance it gave three months ago.
Arista Networks (ANET) reported second-quarter revenue of $3.036 billion, up 37.7% from a year earlier and up 12.1% from the first quarter's $2.709 billion, marking the company's first quarter above $3 billion. The networking-equipment maker's year-over-year growth rate accelerated from 35.1% in the first quarter, reversing the deceleration some investors had watched for after several quarters of slowing comparisons.
The sequential trend is the more telling signal. Quarter-over-quarter revenue growth had been running at 7.8% in the fourth quarter of 2023 and 8.9% in the first quarter of 2024 before jumping to 12.1% in the second quarter, a reacceleration rather than the gradual moderation the earlier pattern implied.
Profitability moved in the same direction. Non-GAAP operating margin reached 49.9% in the second quarter, up 110 basis points from 47.8% in the first quarter and 100 basis points above the 48.8% margin posted a year earlier. GAAP operating margin rose to 45.4% from 42.7% in the prior quarter and 44.7% a year earlier. Gross margin told a different story: GAAP gross margin fell to 62.9% from 65.2% a year earlier, a 230-basis-point decline, while non-GAAP gross margin slipped to 63.4% from 65.6%, continuing a multi-quarter slide that ran from 65.6% in the third quarter of 2023 to 65.2% the following quarter and 63.4% by the fourth quarter. The operating-margin gains came despite that gross-margin pressure, reflecting tighter spending elsewhere in the business.
Non-GAAP diluted earnings rose 40% to $1.02 a share from $0.73 a year earlier, an acceleration from the 32% growth posted in the first quarter, when earnings rose to $0.87 from $0.66. GAAP net income reached $1,212.9 million, up 36.5% from $888.8 million a year earlier and the first quarterly net income to top $1.2 billion, extending a climb from $853.0 million in the third quarter of 2023 to $955.8 million in the fourth.
Deferred revenue, a proxy for bookings not yet recognized as sales, rose to $6,865.9 million as of June 30 from $5,372.4 million at the end of December, a roughly 28% increase, with both the current and non-current portions climbing. Arista did not repurchase any shares in the first half of 2024, compared with $983.0 million bought back in the first half of 2023.
For the third quarter, Arista guides to revenue of approximately $3.3 billion, implying sequential growth of about 8.7%, and non-GAAP operating margin of 48% to 49%. That compares with the guidance the company gave three months ago for the second quarter, which called for roughly $2.8 billion in revenue and a 46% to 47% non-GAAP operating margin — a guide the company has now cleared on both the top and bottom line.
The company also flagged a change in how it calculates non-GAAP income tax, effective in the fourth quarter of 2023, that stopped excluding discrete indirect tax effects tied to stock-based awards. Arista recast prior-period comparatives under the new method, which added $10.7 million to non-GAAP net income for the second quarter of 2023 and $30.4 million for the first half of that year.