Arista Networks and Shopify are currently the top two holdings in my US portfolio. As seen from the image below, ANET dwarfs the other 15 counters in the portfolio.
It did not start off this way. In fact, I have invested slightly more in SHOP and ANET at the beginning, but the more consistent performance from ANET has propelled it upwards.
Both just reported another good quarter last week and I will briefly share my thinking about their prospects going forward.
Arista Networks
You are probably not familiar with Arista Networks but you will know Meta and Microsoft, and they contributed 22% and 17% to ANET revenue respectively. In short, ANET provides cloud networking solutions for them and other enterprises. If you are interested to find out more about ANET, you can read this longer article I wrote about them last November.
As seen from the above charts, ANET has a fantastic year with revenue up by 33.8% and EPS up by 52%. Over a course of 5 years, top and bottom lines compounded above 20%. But you would have notice again that the growth isn’t linear. So expect similar type of growth going forward.
After the strong year, ANET is guiding a much lower growth rate of 10% to 12% for FY2024. Again, don’t look at this business with a 1-year lens. Their average growth rate from 2024 to 2027 will definitely be north of the above guidance with the following drivers.
MSFT and META are going big into AI and having established a strong relationship with them, AENT will benefit from their investment. Interestingly, while there is a “rivalry” between Ethernet and InfiniBand, it seems like they are working with NVIDIA too.
Beyond AI, they are also growing in the enterprise verticals. Having built a strong reputation, it is not hard to see that they will gain more market share going forward.
Shopify
No longer laden with the logistics business, SHOP is back in doing what it does best – growing its platform business. Both segments Merchant Solutions and Subscription Solutions continue to grow. GMV and MRR growth also looks good.
Shopify’s revenue growth is stunning. It more than quadruple its top line in 4 years. Its EPS is lumpy but in terms of FCF, it first turns positive in 2019 and with the exception of last financial year, they have kept it that way and the trajectory does look good.
They have may things going at the same time such as Shop Pay, Shopify Tax, Shopify Bill Pay, Shop Cash, Hydrogen and Oxygen, Shopify Capital, offline point of sales, etc. To be honest, I am kind of confused but it does look like they are firing in all cylinders. And with the increase in their Plus pricing, they should have another good year ahead.
I am happy with how both the companies are progressing and will continue to hold on to my current stake.
Related Links
Arista Networks Q42023 Presentation Deck
Shopify Q42023 Presentation Deck
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