Since Cisco (NASDAQ: CSCO) stocks reached the lowest level this year ($32.20),it has been gradually recovering ever since. Despite bumpy road this year, Cisco’s price is still 50% higher compared to the same period 3 years ago. Can the growth seen over the last few year be sustained or even outperformed and how big the impact from the global pandemic will be for the networking giant?
Most Cisco’s products and services belong to a category, where companies buy not because they want, but because they have no choice. Spending on infrastructure is always seen as ‘the necessary evil.’ Q1 2020 brought a lot of panic and head scratching to the business world. A lot of IT projects were cancelled or put on hold. However, once everyone has gone through the initial phase of panic, it was clear that strategic projects would still have to go ahead.
While some panicked, Cisco continued its work. In August, the company announced the completed acquisition of ThousandEyes, a 10-year-old network intelligence company based in San Franscisco. Once fully integrated, it will undoubtedly give Cisco's clients unique offerings, combining hardware and software solutions for ever-growing need for analytics.
The company’s performance has been good so far. Yes, the stock price dived in March, but this was more because of Covid-19 shock waves rather than Cisco’s performance itself. Webex, its web conferencing software, has seen 2.5 (Americas) and 3.5(Asia) times growth rates in Q1. In the same quarter, the company reported revenues of $13.2 billion, growth of 2% year over year.
More recently, the company has found itself in the muddy waters of international politics. Continuous economic standoff between US and China has seen the company’s products being banned in China. Being shut off from large market is never a good thing except when its competitor- Huawei, is being scrutinized across the world and politicians scramble to make difficult decision whether its products should be continued to be used in national infrastructures. A magnifying glass on its competitor will have a butterfly effect: companies and governments may see Cisco in a more positive and as a less risky option in the political minefield, which can help to boost its bottom line. Another Cisco’s competitor is in a remarkably similar position: Zoom has been having never-ending challenges related to its core product, as more and more security related controversies were uncovered. Some of these may not matter to all the companies, however large household names must take it seriously, hence a healthy increase in Webex subscriptions. However, as with anything related to politics, risks may be more difficult to measure and control.
Investors should also watch out for deferred revenues figures, as Cisco put deferred product revenue up by 24%, compared to 4% increase for services in Q1 2020.
Cisco is in a strong position to weather current economic and political storms. It will not be an easy path, and investors are likely to see some drops in revenue short term, however medium/long term prospects look strong. Recent acquisitions also show that the company has long term plans and actively implementing them.
Rate this article