Investors Love Arista Networks And Ignore Its Controversy: IPO Pops Nearly 40%

Arista NetworksNYSEArista Networks rings the bell at the NYSE

Arista Networks became a public company on Friday, and on its first day of trading investors are absolutely loving it.

The stock was priced at $US43 late Thursday, above the original range of $36-$40 and it soared from there, opening at $US55.25 and rising to a high of $US60 at one point, with more than 5 million shares changing hands. It’s now trading slightly below that high mark.

Arista wooed investors with something they haven’t seen in the tech sector IPO market for a while: profits. Revenues nearly doubled from $US193.4 million in 2012 to $US361.2 million in 2013, and in that same time profits doubled, too, from $US21.4 million to $US42.5 million.

Plus, Arista has some huge customers, and it plays in a hot market, corporate computer network equipment. That’s an area that is undergoing a lot of change, in part thanks to Arista Networks.

Plus the company’s CEO, Jayshree Ullal, is well respected in the field. She was one of the top engineers at its rival Cisco before Arista lured her away. (We’ve previously called her the “Marissa Mayer of the computer networking world.”)

And its pedigree goes far deeper than Ullal. It was founded by billionaires David Cheriton and Andy Bechtolsheim, who famously provided seed money to Google in 1998. Bechtolsheim is perhaps best known as a cofounder of Sun. Cheriton is known as “Professor Billionaire,” tenured at Stanford. This is their third company together.

Investors are also clearly unconcerned with the scandals that have circled the company since it submitted its IPO paperwork. That includes Cheriton suddenly leaving the company in March when Arista announced its IPO. His other startup, OptumSoft, slapped Arista with a lawsuit. The dispute centres on ownership of the software that powers Arista’s products.

Cheriton is Arista’s largest shareholder, so the lawsuit is almost like Cheriton suing himself, legal experts say.

Arista was also accused of some dubious behaviour when tech journalist Adam Lashinsky revealed that Arista offered him pre-IPO shares of the stock. That offer seemed like some sort of bribe.

Those things aside, Arista’s business is solid, booming, and likely to continue that way, which is clearly exciting to investors.

Arista makes an important piece of hardware for big corporate networks called a switch. The switch can be controlled through software, a big trend that is sweeping through the network industry. Such software-programmable networks have become critical for cloud computing. Arista names Facebook, Microsoft and Yahoo as customers as well as companies like Barclays, Citigroup and Morgan Stanley, Comcast, Equinix, ESPN and Rackspace.

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