Arista Networks (NYSE:ANET), the cloud networking solutions specialist, posted better-than-expected first-quarter results. However, ANET shares were down more than 8% in Tuesday’s pre-market trading as the company cautioned about some moderation in customer spending.
Arista’s Q1 adjusted EPS jumped over 70% year-over-year to $1.43, driven by a 54% rise in revenue to $1.35 billion and a lower share count. The company benefited from solid demand and improvement in component supply. Analysts were expecting adjusted EPS of $1.35 on revenue of $1.31 billion.
The company expects Q2 revenue in the range of $1.35 billion to $1.40 billion. Analysts pegged Q2 revenue at $1.35 billion.
Commenting on the Q2 outlook and beyond, Arista’s CFO Ita Brennan stated during the Q1 earnings call that the company expects to further resolve the supply chain issues as the year progresses, which will drive more consistent output and improved lead times. However, the CFO explained that reduced lead times could result in reduced visibility, as the customer no longer needs to make advance purchases.
Brennan warned, “In addition, we expect some moderation in customer spending, especially with our cloud titan customers following year of accelerated demand in 2022.”
Is Arista Networks a Buy?
Following the Q1 print, Raymond James analyst Simon Leopold reiterated a Hold rating on ANET stock. The analyst noted that the company agreed with the Street’s 2023 revenue growth estimate of 26%. He feels that shares are under pressure following the earnings, as visibility into the cloud customers has normalized faster than anticipated. Also, he thinks that investor sentiment was impacted by the lack of any upside to the company’s 2023 revenue forecast.
Overall, Leopold believes that while Arista remains a share-taker in growth markets, it is not immune to normalization. In particular, Leopold remains on the sidelines due to the company’s high customer concentration risk.
Wall Street’s Moderate Buy consensus rating for Arista is based on 14 Buys, five Holds, and one Sell. The average price target of $171.79 suggests 7.3% upside.