June 06--SANTA CLARA -- Arista Networks' elevated initial public offering price wasn't enough for Wall Street, which priced the company as one of Silicon Valley's most valuable networking companies Friday.
The nine-year-old equipment maker announced Thursday night that it charged $43 for its IPO shares, higher than the $40 maximum it expected when originally announcing its proposed range, to bring in $225.8 million. However, when the stock reached the New York Stock Exchange floor Friday morning, the price immediately jumped to $58 and stayed higher than $55 for its first half-hour of trading.
At those prices, Arista's market valuation tops $3.5 billion, outpacing more established Silicon Valley networking companies such as Ubiquiti Networks and Riverbed Technology and nearing the $4 billion value of Brocade Communications, a leader in selling the switching equipment for which Arista is known.
Arista's switches brought faster speeds at smaller sizes to the networking market, offering high-end products that were first in demand only at specialty businesses such as high-speed equities trading, but now offer businesses such as Facebook and Yahoo faster network speeds necessary in a world of cloud computing and big data. The company racked up sales of $361.2 million in 2013, closer to rival Extreme Networks' total of $370 million and far short of Brocade's $2.2 billion, but the company's growth rate of 86 percent has investors and analysts thinking big.
Gabelli analyst Hendi Susanto released a note earlier this week predicting that Arista revenues would hit $1 billion by 2016 thanks to the fast growing market for its technology.
"Arista is targeting the fastest growth segment within the data center switching market that is expected to double from $6 billion in 2013 to $12 billion in 2017," Susanto wrote, predicting that Arista would increase its market share from 6 percent to 10 percent despite Cisco's Goliath standing in its way.
The company was founded by Chief Technology Office Ken Duda with Silicon Valley stalwarts David Cheriton and Sun Microsystems cofounder Andy Bechtolsheim, a duo that had already sold startups to Cisco and Sun when they paired up to launch Arista.
The pair formally announced their involvement with Arista in a 2008 interview with the Mercury News, with Bechtolsheim predicting an IPO for the company that he said reminded him of the early days of Sun.
"When the economy comes back, we'll be well-positioned," he correctly predicted during the throes of the Great Recession.
Bechtolsheim's partnership with Cheriton was not as fortunate, however: Another Cheriton startup, Menlo Park-based Optumsoft, sued Arista just ahead of its public IPO filing, claiming the rights to software used in the newly public company's offerings.
Cheriton resigned from the company's board in March and no longer has any formal affiliation with Arista, but he is still the largest stakeholder with 22.3 percent of the company, according to filings with the Securities and Exchange Commission. Unlike most Silicon Valley startups, Arista did not chase venture-capital money, instead relying on its founders' vast wealth to back the company's beginnings, so the three cofounders and CEO Jayashree Ullal combine to hold more than 58 percent of the company's shares after the IPO.
It's easier to refuse venture funding when a company is producing its own profits, and Arista has done that for at least four years in a row, producing total net income since the beginning of 2010 of more than $100 million and continuing that pattern with a $12.3 million profit in the first quarter of this year.
Arista Networks sold all 5.25 million shares included in the IPO, and will use the proceeds to pay off more than $20 million in debt and for general corporate purposes. The company's underwriting banks -- Arista listed 17 bookrunners and co-managers of its IPO, nearly triple the six banks listed for the more complex upcoming IPO of Chinese Web commerce giant Alibaba -- have access to an additional cache of almost 800,000 shares.
Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.
(c)2014 the San Jose Mercury News (San Jose, Calif.)
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Original headline: Soaring after IPO, Arista Networks becomes one of Silicon Valley's most valuable networking companies
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