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Why Shares of Arista Networks Are Soaring Today

What happened

Shares of networking hardware company Arista Networks (NYSE: ANET) surged on Friday following a strong second-quarter report. Arista beat analyst estimates for revenue and earnings by wide margins, sending the stock 21% higher by 11:30 a.m. EDT.

So what

Arista reported second-quarter revenue of $405.2 million, up 50.8% year over year and about $45 million higher than the average analyst estimate. Product revenue rose 50.2% to $353.9 million, while service revenue jumped 55% to $51.3 million. Arista introduced its R2 Series platforms during the quarter, promising that the off-the-shelf silicon used provides twice the density and uses half the power of custom router silicon.

Arista introduced its R2 Series platforms during the quarter, which helped revenue rise. Image source: Arista Networks.

Non-GAAP EPS came in at $1.34, up from $0.74 during the prior-year period and $0.39 higher than analysts expected. The surge in revenue was the main driver of earnings growth, although gross margin did expand slightly on both a GAAP and non-GAAP basis.

Arista President and CEO Jayshree Ullal commented on the quarter: "As we complete our third anniversary of becoming a public company, I am pleased with our record results in Q2 2017. Our substantial financial performance, customer success and industry recognition has accelerated the migration to mainstream cloud networking."

Now what

Arista expects its strong growth to carry over into the third quarter, with its outlook calling for revenue between $405 million and $420 million. That represents year-over-year growth of 42.2% at the midpoint. Arista also expects to produce a non-GAAP operating margin of roughly 30%.

Arista's strong quarterly report comes a couple of weeks after the International Trade Commission maintained an import ban on products involved in a patent dispute with industry giant Cisco Systems. This setback, however, was overshadowed by the company's blockbuster growth, propelling the stock to new all-time highs.

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Timothy Green owns shares of Cisco Systems. The Motley Fool owns shares of and recommends Arista Networks. The Motley Fool recommends Cisco Systems. The Motley Fool has a disclosure policy.