Arista Networks (ANET) may not be the only disaster of the day, but in my view, it is the most significant. I'm probably just beating a dead horse here, but like the other folks covering this name today, I don't see how you can become involved with a long-term view in mind. I get scalping or even a very short-term trade. You can do that with any stock. Unfortunately, a good third quarter for ANET is overshadowed by ugly guidance for the fourth quarter and beyond.
The company reported earnings per share of $2.69 on revenue of $654.4 million. Although revenue only nudged past estimates, so it was essentially in line, the EPS number crushed expectations of $2.41. Here's where the trouble comes into play. Management guided fourth-quarter revenue in the range of $540 million to $560 million versus estimates of $686.2 million. That isn't a slight miss. We're seeing companies like Pinterest (PINS) that slightly missed (less than 1/2 of 1% on revenue) get hit as hard as ANET today. The trouble is I see one miss as short-term and one as long-term.
Arista's shortfall is due to a reduction in orders from a major cloud titan, a 10% client, thought to be Facebook (FB) . This isn't a single quarter phenomena though. The purchase limitations are anticipated to carry through the end of 2020. That takes expectations of 2020 calendar year growth from a positive 18% to a negative 3%. Arista's other major cloud titan client, Microsoft (MSFT) , looks to continue its normal spending, but that stable outlook isn't going to help Arista's top or bottom line. Furthermore, weak demand from its Tier 2 cloud and service providers could make a bad situation even worse.
After its third cut in three quarters, can investors find a way to trust the stock again? Maybe, but I doubt they will trust the valuation in the same way they have in the past. The uncertainty and unpredictability of demand may have a dampening influence on valuation much in the same way as we've seen in fiber over the past few years.
Shares traded through late fall 2017 lows briefly this morning before bouncing back. There are a lot of lines on the weekly chart here, but what we're seeing is potential psychological resistance. I doubt many of the people or institutions that traded the shares in 2017 and 2018 still hold, but people looking at the charts will give it some consideration. Until we get back above $200 and stay above that level for a few weeks, I don't see anything but struggles on this chart. As many others have already said, and I'm repeating, there are better places to be.
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