Contact: Scott Denne
Arista Networks, a next-generation networking vendor, aims to go public with a last-generation IPO – one from a company that boasts growth and profits. A decade of developing Ethernet switches based on innovative software and merchant silicon, rather than custom chips, has led to a 71% CAGR for the past four years.
The company wrapped up 2013 with $361m in revenue, up 87% from the $193m it posted a year earlier as its largest customers, mostly cloud datacenters, Internet providers and financial services firms, bought more of its gear. Arista’s 10 largest customers accounted for 43% of sales in 2013, up from 32% in 2011. Its largest customer, Microsoft, accounted for $80m of its sales last year, up from $14m in 2011.
Unlike most other newly minted enterprise IPOs, Arista’s growth hasn’t come at the expense of profits. Instead, it’s printing cash. Aside from a slight uptick in the resources it earmarks for R&D, all of Arista’s costs have risen in tandem with, rather than ahead of, revenue and it finished 2013 with $42m in profit, up 99% from a year earlier.
Having posted four straight profitable years removes some of the guesswork of estimating Arista’s future cash flows, and we expect that Wall Street will put a premium on that – and its stellar growth, of course. As disclosed in its S-1, shares of the company have traded hands this year at prices that value Arista at $3-3.5bn. As a public company, we’d expect it to trade far higher than that.
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