Arista Networks (ANET)

Business Overview

Arista Networks is data-centre networking with a heavy inventory build and concentrated end customers. FY2025 revenue was $9.0B, up 28.6%. Gross margin was 64.1% and operating margin 42.8%. R&D was 13.7% of revenue. Stock-based compensation was 4.9%. Free cash flow was $4.3B.

Product gross margin was 60.7%; service gross margin was 81.9%. Inventory stood at 253 days of cost of revenue; cash conversion cycle was 256 days (DSO 77, DPO 74). Two end customers were 26% and 16% of revenue. Remaining performance obligations were $6.1B, up from $3.4B. Purchase commitments were $6.8B, of which $6.3B within a year. Gross margin has stayed in a 61.1% to 64.5% band from FY2016 through FY2025.

How the Numbers Read

Operating margin at 42.8% is high for hardware, but the balance sheet carries the cycle risk. Inventory at 253 days and a 256-day cash conversion cycle mean growth and customer timing are funded on Arista's own capital, not on suppliers. Purchase commitments of $6.8B sit beside that inventory: if the two large customers slow orders, both stock and contracts are exposed.

Customer concentration (26% and 16%) is the demand-side twin of the inventory build. RPO rising to $6.1B from $3.4B shows contracted demand growing faster than revenue, but conversion still depends on those customers taking product. The narrow gross-margin history (61.1% to 64.5%) is stable; inventory days are not. The purchase-commitments guide pairs obligations with balance-sheet inventory across the set.

How the Model Values This Kind of Company

Data-centre networking is valued on product revenue through the cycle, a services line from the installed base, and an optional order book. Gross margin is mix-weighted between product and service. Long inventory days make working-capital investment a first-order cash item when revenue grows or when the cycle turns.

Purchase commitments sit beside inventory as downturn exposure. Terminal value uses mid-cycle free cash flow, and stock pay is charged. Customer concentration is why inventory days and the order book are the inputs to stress for this kind of company.

What to Watch in the Financials

Inventory days. 253 days of cost of revenue. A further rise ahead of slowing revenue growth is the classic early warning.

Purchase commitments. $6.8B ($6.3B within a year). Near-term commitments against long inventory raise write-down risk if demand slips.

Two end customers. 26% and 16% of revenue. Order timing at those accounts moves consolidated results.

RPO. $6.1B from $3.4B. Watch conversion into revenue versus further inventory build.

Key Risks

Inventory overhang. 253 days of inventory plus $6.8B of commitments is a large stock-and-contract position if data-centre spend pauses.

Customer concentration. Two end customers at 26% and 16% mean a single account's delay hits revenue and inventory together.

Positive cash conversion cycle. At 256 days, growth consumes cash; a downturn that leaves inventory stranded consumes more.

Service mix dependence for the top line margin. Service gross margin at 81.9% lifts the blend; product at 60.7% is where volume risk sits.