Arista Networks, Inc. (ANET) DCF Valuation & Fundamental Primer
Arista Networks, Inc. (ANET) currently trades at $137.19 with an enterprise value of $190.87B. Our proprietary institutional model rates Arista Networks, Inc. at 82/100 (Grade: A · High-Quality Compounder). The current market price prices in an implied 5-year revenue CAGR of 21.1% vs. historical growth of 24.9% (Fairly Priced to Fundamentals).
Institutional fundamental teardown of Arista Networks, Inc. (ANET) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
Arista Networks, Inc. (ANET) 3-Scenario DCF Valuation Range
Stress-test ANET's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $137.19).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $175.11 +28% | $186.10 +36% | $198.93 +45% | $214.10 +56% | $232.29 +69% |
| 9.3% | $157.28 +15% | $165.94 +21% | $175.89 +28% | $187.43 +37% | $200.98 +46% |
| 10.0% | $142.64 +4% | $149.60 +9% | $157.50 +15% | $166.52 +21% | $176.93 +29% |
| 10.8% | $130.40 -5% | $136.10 -1% | $142.48 +4% | $149.69 +9% | $157.90 +15% |
| 11.5% | $120.03 -13% | $124.76 -9% | $130.00 -5% | $135.87 -1% | $142.47 +4% |
Institutional Software Quality Scorecard (82/100 · Grade A)
Strong fundamentals, above-average cash generation, and robust competitive positioning.
Elite deferred revenue float; FCF exceeds operating income by >20%
Elevated equity dilution; SBC consumes substantial operating cash flow
Elite Tier-1 SaaS compounder with high gross margin and superior Rule of 40
Positive net cash cushion; self-funding operations with zero insolvency risk
Core Investment Strengths & Moats
- High-grade cash conversion: FCF is 201% of EBIT driven by upfront annual collections
- Top-quartile software unit economics: 80.1% gross margin and 55.5% Rule of 40 score
- Net cash positive: $7.38B balance sheet buffer
Key Operational & Dilution Risks
- Substantial SBC dilution drag: SBC is 20.6% of revenue ($3.87B)
Reverse-DCF Solver: What Growth is Priced Into ANET?
Market implies 21.1% annual revenue growth over next 5 years (35.0% dilution-adjusted), in line with company run-rate.
Headline Reverse-DCF ignores Stock-Based Compensation (20.6% of revenue) and annual share dilution (1.8%/yr). Accounting for both requires 35.0% 5-year revenue CAGR to justify $137.19/sh on a true per-share economic cash flow basis.
Arista Networks, Inc. (ANET) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $18.77B | $18.77B | $23.44B | $29.28B | $36.57B | $45.68B | $57.05B |
| Gross Profit | $15.03B | $15.03B | $18.78B | $23.45B | $29.29B | $36.59B | $45.70B |
| Operating Income (EBIT) | $2.85B | $2.85B | $3.56B | $4.45B | $5.56B | $6.94B | $8.67B |
| Stock-Based Compensation (SBC) | $3.87B | $3.87B | $4.83B | $6.03B | $7.53B | $9.41B | $11.75B |
| Unlevered Free Cash Flow (FCF) | $5.74B | $5.74B | $7.17B | $8.96B | $11.19B | $13.98B | $17.46B |
| SBC-Adjusted True Cash Flow | $1.88B | $1.88B | $2.34B | $2.93B | $3.66B | $4.57B | $5.71B |
Software & Cloud Services Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = -26.3 + 0.72 × (Rule of 40) · R² = 63%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| Arista Networks, Inc. | ANET | $172.68B | $18.77B | 80.1% | 30.6% | 55.5% | 20.6% | 8.8× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Salesforce | CRM | $217.10B | $37.90B | 77.2% | 32.8% | 42.8% | 8.4% | 5.8× |
| Datadog | DDOG | $46.05B | $2.68B | 80.8% | 31.1% | 57.7% | 21.3% | 17.4× |
| Snowflake Inc. | SNOW | $71.79B | $3.63B | 66.5% | 25.2% | 57.7% | 40.8% | 20.0× |
| Hubspot | HUBS | $19.89B | $2.63B | 85.0% | 21.3% | 52.7% | 19.2% | 7.7× |
| Peer Cohort Median Benchmark (N=6) | 78.2% | 29.2% | 53.5% | 19.1% | 10.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 8.8× | $165.30B | $172.68B | $137.19 | 0.0% |
| -20% Multiple Compression | 7.0× | $132.24B | $139.62B | $110.92 | -20.0% |
| -35% Multiple Compression | 5.7× | $107.45B | $114.82B | $91.22 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $93.85B | $101.22B | $80.42 | -43.2% |
Frequently Asked Questions: Arista Networks, Inc. (ANET) Valuation
What is Arista Networks, Inc. (ANET)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, Arista Networks, Inc. (ANET) has a Base Case implied value of $157.50 per share (with a Bear Case of $65.85 and a Bull Case of $292.57), compared to its current price of $137.19. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is Arista Networks, Inc. (ANET)'s Rule of 40 score and Free Cash Flow margin?
Arista Networks, Inc. achieves a Rule of 40 score of 55.5%, combining a 24.9% revenue growth run-rate with a 30.6% TTM free cash flow margin on $18.77B in trailing twelve-month revenue. In the Software & Cloud Services peer cohort, the median Rule of 40 benchmark is 53.5%.
What revenue growth rate is priced into ANET stock according to Reverse-DCF analysis?
At $137.19 per share (Enterprise Value of $165.30B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 21.1%, compared to Arista Networks, Inc.'s historical CAGR of 24.9%. Overall market expectations are rated as "Fairly Priced to Fundamentals".
How does Arista Networks, Inc. compare to Software & Cloud Services software peers?
Arista Networks, Inc. (ANET) earns an institutional Software Quality Score of 82/100 (Grade A — High-Quality Compounder). Across its Software & Cloud Services peer group (NOW, WDAY, CRM, DDOG, SNOW), the cohort trades at a median EV/TTM Revenue multiple of 10.8× and a median gross margin of 78.2%.
How does Stock-Based Compensation (SBC) impact Arista Networks, Inc. (ANET)'s valuation?
Arista Networks, Inc. recorded $3.87B in TTM stock-based compensation (20.6% of revenue). When treating SBC as a cash-equivalent compensation expense, Arista Networks, Inc.'s SBC-adjusted free cash flow yield is 1.1%, scoring 10/25 on our Shareholder Dilution Friction pillar.