Image: Arista Networks.
High-speed data centers have been an integral part of the revolution in cloud computing, as the ability to provide hardware that can serve virtual networks across an enterprise customer's entire physical footprint is crucial. Arista Networks has played a major role in the data-center area, and coming into Thursday afternoon's second-quarter financial report, shareholders believed that Arista could keep up its high rates of growth and continue to work toward a brighter future. Let's take a closer look at what Arista Networks is likely to tell us later this week and whether it's still on track to meet its full potential in the future.
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Source: Yahoo! Finance.
Can Arista Networks earnings soar further? In recent months, investors have boosted their views on Nuance earnings, pushing their second-quarter projections up by about 10% and making similar increases to longer-term full-year 2015 and 2016 estimates. The stock has continued its upward run, climbing by nearly a third just since late April.
Arista Networks actually started the quarter off on tough footing, with its first-quarter results raising some questions about whether the company would see its growth rates start to slow. Revenue climbed by more than half, and on an adjusted basis, net income more than doubled from the previous year's quarter. Yet Arista said in its second-quarter guidance that it expected only 35%-40% growth in revenue, and that sparked a temporary pullback in the stock that saw shares fall 5% in the day following the report.
Over the course of the quarter, though, investors got more confident in Arista's longer-term prospects. Many see the cloud specialist doing a good job of taking away market share from larger competitors, with Arista engaging in smart collaborations with other players in the tech industry to try to foster growth. For instance, in June, Hewlett-Packard announced that it had entered into a new partnership with Arista that should give customers the benefit of Arista's programmable network platforms to make networks more efficient. As Arista business development VP Ed Chapman said, "The joint reference architectures from HP and Arista will deliver a dramatically simplified path to convergence and cloud-efficiency for our joint customers."
Moreover, signs from some of Arista's major customers suggest that its results could be strong. Arista sells products to some of the largest cloud-computing players in the industry, and so far this earnings season, the major companies in cloud computing have reported impressive gains in adoption among enterprise clients seeking cloud-based technology solutions. It's fair to assume that with Arista's customers seeing solid results, Arista itself will be able to capitalize on their success and hopefully attract larger orders in the future.
Arista also has a number of areas where it can seek to improve on past results and find new opportunities for growth. By reorganizing its internal sales team, Arista hopes to expand its ability to reap revenue from international sources, which could provide a new and fertile source of future sales. Moreover, Arista's expertise in data centers lends itself naturally to an expanded presence in the data analytics field, and tapping into huge demand for those services could also lead to long-term revenue gains.
When Arista Networks announces its latest results, look beyond the headline sales and income numbers to check on where the company's revenue is actually coming from. Moreover, comments from company executives will be especially important in determining the list of priorities that Arista has toward building a brighter future. With so much optimism for the company's prospects, Arista Networks has a good chance of giving investors what they want to see both now and in the months and years to come.
The article Arista Networks Looks to Keep Climbing Higher originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends, and owns shares of, Arista Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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