Shares of computer networking company Arista Networks Inc. had a record break Friday in the wake of a very depressed revenue outlook, after another "cloud titan" customer informed the cloud of a "material reduction" in orders.  This led to a number of downgrades by Wall Street analysts and a number of stock price measurements.
fell 25% to a two-year low in midday trading, on volume that was already 1
Arista said late Thursday that it expects fourth-quarter revenue of $ 540 million to $ 560 million, well below the $ 686 million FactSet consensus.
“After experiencing the pause for a specific Sky Titan order in Q2 2019, we expected an improvement in the second half of 2019 for cloud titanium use. In fact, Q3 2019 is good proof of that, "CEO Jayshree Ullal said at the conference after analysts' earnings, according to a FactSet transcript. "However, we were recently informed of a change in procurement strategy with a significant reduction in demand from another cloud titan, which dramatically reduced the forecast from original projections for both Q4 2019 and calendar 2020."
Don & # 39; t miss : Opinion: A high-flying tech stock only tanked because a "cloud titan" stopped purchasing.
CFO Ita Brennan said on the call while the company was unable to provide "general guidance" for 2020, demand from the cloud business could be expected to be "flat to down" next year.
Of the 30 analysts surveyed by FactSet, no less than seven have downgraded Arista's shares and 16 have cut their price targets. Most analysts (60%) now rate the company similarly and one is now bearish, compared to 55% bulls and no bears before the results. The average price target has dropped to $ 234.91, from $ 295 a month ago.
J.P. Morgan analyst Samik Chatterjee reduced his rating to underweight, having been neutral since May 2018. He reduced the price target by 39% to $ 180 from $ 290.
Chatterjee believes the latest shooting titan to cut spending is Facebook Inc.
FB, + 0.43%
that Arista said is one of only two customers representing more than 10% of sales, the other is Microsoft Corp.
MSFT, + 0.00%
He said his new bearish view is because he thinks "the way forward for [Arista] shares is extremely challenging" next year given the disappointing guidance, and because he expects "significantly higher volatility" in Arista's primary customer spending and lack of visibility in growth trends.
Stifel Nicolaus & # 39; s John Marchetti, who also thinks Sky Titan is Facebook, lowered the rating to hold, after being bullish for about a year, and his price target to $ 193 from $ 287. His disappointment at the outlook stems from management's recent claim that cloud spending would return to a more normalized rate.
"In addition, we see few short-term stock price catalysts and believe the next opportunity to return to growth is the upcoming 400G upgrade cycle, which we do not expect to begin until 2H20 and ramp in 2021," wrote Marchetti in a research note.
Analyst Michael Genovese kept his rating neutral, but put his price target at $ 210 from $ 275.
"On the one hand, revenue estimates and stock are aggressively reset," Genovese wrote. "On the other hand, the cloud outlook is significantly worse, and there is significant deferred revenue headwinds in 2020."
For the third quarter, Arista reported revenues up 16% to $ 654.4 million, above the FactSet consensus of $ 653.3 million. Net income grew 24% to $ 208.8 million, or $ 2.59 per share, while non-recurring earnings were $ 2.69 per share to beat expectations of $ 2.41, according to FactSet. The company has beaten both profit and revenue expectations every quarter since its release.
The stock, which is moving towards its lowest end since November 2, 2017, has now plunged 12% so far, while the SPDR Technology Select Sector exchange traded fund
XLK, + 0.88%
has risen 36% and the S&P 500 index
SPX, + 0.85%
has advanced 22%.