Arista Networks, Inc. (ANET) Q4 2024 Earnings Summary

Executive Summary

• Strong Q4 finish: revenue $1.93B (+6.6% q/q, +25.3% y/y), non-GAAP EPS $0.65, GAAP EPS $0.62; non-GAAP operating margin 47.0%. Management emphasized execution, with “over 95% year-over-year growth in operating cash flow for the quarter.”
• Results were above company guidance: revenue topped the prior $1.85–$1.90B guide, non-GAAP gross margin slightly above the 63–64% guide, and operating margin well above ~44%.
• FY25 outlook tightened upward: revenue growth now ~17% (≈$8.2B) vs prior 15–17%; FY25 non-GAAP GM reiterated at 60–62% and OM at 43–44%. Q1’25 guide: revenue $1.93–$1.97B, ~63% non-GAAP GM, ~44% OM.
• AI remains the key narrative: Meta deployed Arista’s 7700R4 Distributed Etherlink Switch; Arista reiterated its 2025 targets of ~$750M AI back-end and ~$1.5B total AI networking revenue (front-end + back-end).

What Went Well and What Went Wrong

• What Went Well

  • Top-line and profitability beat internal targets: Q4 revenue $1.93B, non-GAAP GM 64.2% (slightly above guide), non-GAAP OM 47.0% vs ~44% guided. CFO: “exceeding our guidance on all key metrics.”
  • Cash generation and balance sheet: “over 95% y/y growth in operating cash flow” in Q4; cash, equivalents and marketable securities ≈$8.3B; share repurchases continued ($123.8M in Q4).
  • AI/customer momentum: Meta AI cluster deployment; reiterated confidence in $8.2B FY25 revenue (+17%) and ~$1.5B AI revenue aspiration. “We remain optimistic about achieving our AI revenue goal of $1.5 billion in 2025.”

• What Went Wrong

  • Gross margin compression y/y: GAAP GM 63.8% (vs 64.9% in Q4’23) as mix shifted toward large cloud/AI customers; management cited mix and absorbing some China tariffs.
  • International softness q/q: International declined to 16% of revenue (from 17.6% in Q3) due to higher relative domestic mix.
  • AI timing variability and deferred dynamics: one of five AI customers “stalled” awaiting GPUs/funding; product deferred revenue rose with more trials/acceptance clauses, increasing recognition variability into 2025.

Financial Results

Quarterly trend (oldest → newest):

Year-over-year comparison:

Segment and mix:

Key KPIs and balance sheet:

Estimate vs actuals:

• Wall Street consensus (S&P Global) was unavailable due to API rate limits; therefore, beat/miss vs consensus cannot be quantified. Results exceeded company guidance on revenue, gross margin and operating margin.
  Note: S&P Global consensus values unavailable at time of analysis.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We delivered revenues of $1.93 billion for the quarter, with a non-GAAP earnings per share of $0.65, adjusted for the recent 4:1 stock split.” — CEO Jayshree Ullal
• “We reiterate at the upper range of our 2025 guidance of our double-digit growth at 17%, now aiming for approximately $8.2 billion in 2025 in revenue.” — CEO
• “Our operating income for the quarter was $907.1 million or 47% of revenue… diluted EPS for the quarter of $0.65.” — CFO
• “Almost in all the back-end examples we've seen, the AI spine is generally 100% Arista-branded EOS… The AI leads can vary.” — CEO on white box vs OEM
• “For gross margin, we reiterate… 60% to 62% with Q1 '25 expected to be above the range due to mix… we will continue to monitor the fluid tariff situation.” — CFO
• “3 out of the 4 customers are expected to this year rolled out a cumulative of 100,000 GPUs… the fourth [historically InfiniBand]… expect to go into production next year.” — CEO

Q&A Highlights

• AI deployments and visibility: 3 of 4 major AI customers are poised for substantial 2025 GPU rollouts (~100k cumulatively); one customer is stalled (not a Cloud Titan) pending GPUs/funding.
• Mix-driven margin outlook: FY25 GM guide (60–62%) reflects customer/mix; partial absorption of China tariffs; not pricing-led.
• Competitive posture: Arista EOS typically anchors the AI spine; coexistence with white box/open OS on leaves; differentiation in routing scale, real-time analytics, congestion control and upgradeability.
• Services and deferred: Services grew 40% y/y; deferred revenue up with more trial/acceptance clauses; timing bespoke across customers and use cases.
• Capital allocation: ~$8.3B cash & securities, continued buybacks ($123.8M in Q4) with a remaining $921M under authorization; inorganic use remains least likely.

Estimates Context

• Beat/miss vs Wall Street consensus: S&P Global consensus was unavailable at the time of analysis (API rate limit), so we cannot quantify the EPS and revenue surprise versus consensus. [Note: S&P Global consensus values unavailable]
• Relative to company guidance: Revenue exceeded the $1.85–$1.90B guide; non-GAAP GM and OM beat the ~63–64% and ~44% targets, respectively.

Key Takeaways for Investors

• Execution strength with operating leverage: Q4 delivered revenue and margin beats vs guidance; non-GAAP OM at 47% underscores durable cost discipline and software/services contribution.
• FY25 growth raised to 17% ($8.2B), anchored by AI and enterprise/campus adjacencies; GM guide implies mix normalization vs recent highs.
• AI narrative strengthening: multi-customer deployments, Meta validation, and EOS-led spine advantage position Arista to capture both back-end and front-end spend; reiterated ~$1.5B AI networking target for 2025.
• Watch mix and tariffs: Margin cadence will be driven by Cloud Titan/AI mix and partial tariff absorption; Q1 GM expected above FY range due to mix.
• Deferred revenue and acceptance clauses signal a robust pipeline but add revenue timing variability into 2025; rising purchase commitments support 800G ramp readiness.
• Balance sheet optionality: ~$8.3B in cash/securities and ongoing buybacks offer flexibility amid elevated AI investments and working capital needs.
• Stock catalysts: Continued AI order/PO visibility, front-end follow-through to back-end builds, margin performance vs mix/tariffs, and updates on stalled customer progress could drive sentiment.