News Column

IPO Report: Arista Networks (ANET)

June 5, 2014

Francis Gaskins

Arista Networks ($ANET) is a leading supplier of cloud networking solutions that uses software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation data centers for enterprises. It is headquartered in Santa Clara, CA.

ANET is the only new IPO scheduled for the week of June 2, 2014. There are seven IPOs scheduled for the week of June 9. The full IPO calendar is available at IPOpremium.





The manager and joint managers are Morgan Stanley, Citigroup, BofA Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank, and RBC Capital Markets. The co-managers are Wells Fargo Securities, Cowen/ JMP Securities, Needham, Oppenheimer, Pacific Crest Securities, Raymond James, Stifel, The Juda Group, and William BlairSEC Filings



ANET scheduled a $200 million IPO with a market capitalization of $2.43 billion at a price range midpoint of $38 for Friday, June 6, 2014 on the NYSE.

Overview



ANET is a leading supplier of cloud networking solutions that uses software innovations to address the needs of large-scale Internet companies, cloud service providers, and next-generation data centers for enterprises, based on market share.

ANET has a history of profitability and actually has $53 million in retained earnings, a definite rarity for high revenue growth IPOs.

Top line revenue for 2013 vs 2012 grew 87% to $367 million while profits increased 99% to $42 million.

Q1 '14 revenue vs Q1 '13 revenue increased 91% to $117 million while profits grew 86% to $12 million.

Based on annualizing Q1 '14 profits, the P/E is 50.

Valuation



Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered



annualizing Q1 '14

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO



Arista Networks (ANET)

$2,432

5.2

50.7

6.5

6.5

8%



 

 

Conclusion

The rating on ANET is buy.

           

Business



ANET is a leading supplier of cloud networking solutions that uses software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation data centers for enterprises, based on market share.

ANET's cloud networking solutions consist of its Extensible Operating System, or EOS, a set of network applications and ANET's 10/40/100 Gigabit Ethernet switches.

ANET's cloud networking solutions deliver industry-leading performance, scalability, availability, programmability, automation, and visibility.

2nd largest market share



Since ANET began shipping its products, it has grown rapidly, and, according to Crehan Research, ANET has achieved the second largest market share in data center 10/40/100 Gigabit Ethernet switch ports, excluding blade switching, sold in 2013.

COS cloud networking platform



At the core of ANETs' cloud networking platform is EOS, which was purpose-built to be fully programmable and highly modular.

The programmability of EOS has allowed ANET to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility and analytics, and has also allowed ANET to rapidly integrate with a wide range of third-party applications for virtualization, management, automation, orchestration and network services.

Supports leadingcloud & virtualization solutions



EOS supports leading cloud and virtualization solutions, including VMware NSX, Microsoft System Center, OpenStack, and other cloud management frameworks.

ANET has worked with industry leaders to define new open protocols for the virtualized data center.

ANET co-authored the VXLAN protocol specification with VMware and was the first to demonstrate VXLAN integration. ANET also co-authored the NVGRE protocol specification with Microsoft and support integration with Microsoft's System Center.

Uses standard Linux



ANET uses standard Linux as its underlying operating system, providing customers with access to all Linux operating system facilities.

This allows customers to extend ANET's EOS software with off-the-shelf Linux applications and a growing number of open source management tools.

Modular



EOS has a highly modular architecture, which allows ANET to prevent network outages in deployments of its cloud networking solutions.

This architecture also allows ANET to rapidly develop new features and protocols without compromising the quality of the existing code base.

Because all of its switching products are powered by the same binary image of EOS, ANET is able to deliver these new innovations to its entire installed base with minimal disruption.

Dividend Policy



No dividends are planned.

Intellectual Property



As of March 31, 2014, ANET had 28 patent applications pending in the United States and two patents granted in the United States, which expire in 2025 and 2028.

Competition



ANET competes with large network equipment and system vendors, including Cisco Systems, Juniper Networks, Brocade Communications Systems, Hewlett-Packard, and Dell.

5% stockholders



The 2010 David R. Cheriton Irrevocable Trust       24.73%

The Bechtolsheim Family Trust                                         21.95%

The 2000 Ullal Trust dated February 15, 2000        7.24%                      

Jayshree Ullal                                                         13.33%

Andy Bechtolsheim                                                          22.66%         

Use of proceeds



ANET expects to net $182 million from its IPO. Proceeds are allocated as follows:

the prepayment of the Singtel Innov8 Pte. Ltd subordinated convertible promissory note. ANET intends to use $23.6 million of the net proceeds its receives from this offering to prepay the principal and accrued interest of the Singtel Innov8 Pte. Ltd subordinated convertible promissory note.

The remaining net proceeds for general corporate purposes, including working capital, sales, and marketing activities, product development, general and administrative matters and capital expenditures, although ANET does not currently have any specific or preliminary plans with respect to the use of proceeds for such purposes.


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Source: Equities.com


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