Shares of Arista Networks (ANET -7.61%) are falling on Wednesday. The company’s stock lost 6.5% as of 1:45 p.m. ET but was down as much as 8.5% earlier in the day. The loss comes as the S&P 500 and the Nasdaq Composite were flat.
Arista, maker of high-performance networking solutions for data centers, reported earnings that mostly exceeded expectations. Reading between the lines, however, there was some cause for concern, sending shares lower.
The numbers
For Q4 2024, Arista posted earnings per share (EPS) of $0.65 on $1.93 billion in revenue, up from $0.52 during the same period last year. The numbers solidly beat consensus estimates of $0.57 on $1.90 billion in revenue. The company expects Q1 2025 sales of $1.93 billion to $1.97 billion.
Concentration concerns
Although the numbers were solid, investors were concerned with a decline in sales from a critical customer. Meta Platforms is one of Arista’s largest, responsible for roughly 15% of the company’s revenue. However, that figure is down from 20% last year; the earnings call revealed that despite Arista’s overall sales growth and Meta spending a record amount on data center capital expenditures, Arista’s Meta account shrunk by 17% year over year.
The drop calls attention to just how reliant Arista is on a handful of major customers. A highly concentrated customer base makes a company highly vulnerable to even slight changes in any one of these relationships. One or more of these relationships ending could be catastrophic to Arista’s bottom line.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks and Meta Platforms. The Motley Fool has a disclosure policy.
