Arista Networks (ANET) shares took a hit in after-hours trading on Thursday as the cybersecurity company announced shrinking margins, despite beating Wall Street’s earnings expectations. This news comes after the cloud networking giant reported a 7% year-over-year increase in revenue to $1.81 billion, surpassing analyst estimates. Net income also saw a significant jump, coming in at $747.9 million or $2.33 per share, up from $545.3 million or $1.72 per share a year earlier.
Although Arista’s financials showed promise, with profits exceeding projections, the company’s gross margin for the third quarter was lower at 64.2% compared to the previous quarter. Looking ahead, Arista anticipates further margin decreases in the fourth quarter, forecasting between 63% and 64%.
Despite the margin concerns, Arista provided a positive outlook for the fourth quarter, projecting revenue in the range of $1.85 billion to $1.9 billion, which is above the consensus estimate. However, some investors may have had higher expectations, particularly with Citi analysts predicting a 28% growth in the fourth quarter due to increased cloud spending driven by AI demand.
In an effort to make its stock more accessible to a wider range of investors, Arista also announced a four-for-one stock split. This means that for every one share held by stockholders, they will receive three additional shares. The split, set to take effect on December 4th, will reduce the price of each share by a factor of four, without altering the total value of investors’ holdings.
Following these announcements, Arista’s stock dropped over 7% in after-hours trading. However, despite this dip, the stock has seen an impressive 83% increase in value year-to-date. Investors will be watching closely as Arista navigates its margin challenges and looks to capitalize on the burgeoning demand for cloud networking solutions in the market.
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