Cisco Systems Inc (CSCO) recently reported its fourth-quarter and fiscal year 2024 earnings. The report has generated significant attention from investors and analysts, given its implications for the company’s future performance and stock valuation.  In this article, we delve into the key insights from Cisco’s earnings, the implications for investors, and the stock outlook.

Key Takeaways from Cisco Systems Q4 Report: 

Below are the key insights from Cisco System Q4 earning report.

• Cisco reported Q4 revenue of $13.6 billion, reflecting a 10% year-over-year decrease.
• Despite the revenue decline, the figure was at the high end of Cisco’s guidance range, demonstrating the company’s ability to meet market expectations.
• GAAP net income for Q4 dropped by 45% to $2.2 billion, indicating some challenges for the company.
• The acquisition of Splunk contributed $960 million to the total revenue, helping to mitigate the overall revenue decline.
• Cisco reported strong growth in software and recurring revenue, with total subscription revenue reaching $27.4 billion, representing 51% of total revenue.
• Annualized recurring revenue (ARR) was $29.6 billion, bolstered by the Splunk acquisition.
• These metrics indicate Cisco’s strategic shift towards software-driven revenues in the evolving IT landscape.

Positive Implications for Investors: 

Despite the year-over-year revenue decline, Cisco’s focus on software and recurring revenue streams presents a positive long-term outlook. The company’s ability to maintain strong gross margins, with a GAAP gross margin of 64.4% and a non-GAAP gross margin of 67.9%, indicates operational efficiency. Furthermore, the increase in software subscription revenue by 15% year-over-year signals a successful transition towards a more resilient and predictable revenue model.

Negative Implications for Investors: 

On the downside, the substantial decrease in both GAAP and non-GAAP earnings per share (EPS) is a concern. The GAAP EPS fell by 44% year-over-year, while non-GAAP EPS declined by 24%. This decline, partly attributed to the costs associated with the Splunk acquisition, raises questions about the short-term profitability and integration risks associated with the acquisition.

Stock Target Advisor’s Analysis on Cisco Systems: 

According to Stock Target Advisor, Cisco Systems Inc. has a bullish outlook, supported by 11 positive signals and 4 negative signals. The average target price for the stock is $61.20, with a current price of $45.44. The analysis highlights Cisco’s high market capitalization, superior risk-adjusted returns, low volatility, and strong return on equity as key positive factors. However, concerns such as the stock being overpriced compared to book value and cash flow metrics, along with low revenue growth, temper this optimism.

Stock Outlook After Quarterly Results: 

Following the quarterly results, the outlook for Cisco’s stock appears mixed. While the company’s strategic shift towards software and recurring revenues is promising, the declining core product revenue and lower profitability raise concerns. Analysts suggest a cautious approach, with some advising a hold position until the company demonstrates consistent revenue and profit growth.

Conclusion: 

Cisco’s Q4 and fiscal year 2024 earnings report reflects a company in transition. While the shift towards software and recurring revenues is encouraging, the decline in overall revenue and profitability presents challenges. Investors will need to weigh the long-term potential of Cisco’s strategic initiatives against the short-term financial pressures.