In the third quarter of fiscal year 2024, Cisco delivered strong financial performance with organic revenue at the high end of guidance and exceeded gross marginGross margin is a critical financial metric that plays a pivotal role in evaluating a company's financial health and profitability. It is a percentage that indicates how efficientl... More expectations. This led to better-than-anticipated earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More. The company saw growth in annualized recurring revenue, subscription revenue, and remaining performance obligations. The business model transformation has been successful, with subscription revenue now accounting for more than half of the total revenue.
Key highlights include the acquisition of Splunk, adding significant recurring revenue and expanding Cisco’s software solutions portfolio. Cisco also introduced Cisco HyperShield, an innovative AI-powered security solution. The company returned $2.9 billion to shareholders in Q3 through share repurchases and dividends, totaling $8.5 billion year-to-date.
Revenue in Q3 was $12.7 billion, with notable growth in security and observability sectors. Despite a decline in networking revenues, strong performance in other areas, particularly from Splunk, contributed positively. Looking ahead, Cisco expects continued growth driven by innovation and strategic acquisitions.
Insights
- Subscription revenue now constitutes more than half of Cisco’s total revenue.
- The acquisition of Splunk significantly boosts Cisco’s software and security portfolio.
- Introduction of Cisco HyperShield marks a significant advancement in AI-powered security.
The Essence (80/20)
- Core Performance: Cisco’s Q3 financial results showed strong performance with high organic revenue and better-than-expected earnings per share.
- Business Model Transformation: Significant shift towards subscription-based revenue, now making up over half of the total revenue.
- Strategic Acquisitions: Completion of the Splunk acquisition, enhancing Cisco’s software capabilities and contributing substantial recurring revenue.
- Innovation: Launch of Cisco HyperShield, an AI-powered security solution integrated into the network fabric.
- Shareholder Returns: $2.9 billion returned to shareholders in Q3, with $8.5 billion returned year-to-date.
The Action Plan
- Focus on Subscription Services: Continue to grow and market subscription services, leveraging the success of the business model transformation.
- Integrate and Leverage Splunk: Maximize synergies from the Splunk acquisition by integrating their solutions with Cisco’s existing offerings.
- Promote Cisco HyperShield: Highlight the benefits and innovative features of HyperShield to attract new customers and retain existing ones.
- Enhance R&D: Maintain strong investment in research and development to drive continuous innovation across networking, security, and AI.
Blind Spot
- Networking Revenue Decline: Despite overall strong performance, there was a notable decline in networking revenue. Understanding and addressing the factors behind this decrease will be crucial for balanced growth.
Cisco (CSCO) Technical Analysis
Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI)
- Value: 65.32
- Interpretation: The RSI is approaching the overbought threshold of 70, suggesting that the stock is gaining momentum but may face resistance soon.
On-Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV)
- Value: 23,000,299
- Interpretation: OBV is increasing, indicating that volume on up days is outpacing volume on down days, a positive signal for the stock’s upward movement.
Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More
- Value: 1.000
- Interpretation: The Stochastic RSI is at 1, indicating that the stock is in the overbought territory and might experience a pullback.
Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... More (ADX)
- Value: 15.45
- Interpretation: The ADX value below 20 suggests that the stock is not currently in a strong trend, indicating a potential period of consolidation.
Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More
- Value: 17,428,215
- Interpretation: The Chaikin Oscillator is positive, suggesting that there is buying pressure in the market.
Moving Averages
- 50-Day Moving Average: The stock is trading slightly above its 50-day moving average, indicating a short-term bullish signal.
- 200-Day Moving Average: The stock is below its 200-day moving average, indicating a longer-term bearish trend.
Volume Analysis
- Current Volume: The volume is significantly high, which could suggest strong interest in the stock and potential continuation of the current trend.
- Short-Term Outlook: The stock shows positive short-term momentum as indicated by the RSI and OBV. However, the overbought conditions in the Stochastic RSI suggest a possible short-term pullback.
- Long-Term Outlook: Trading below the 200-day moving average indicates that the stock is in a longer-term downtrend, and it needs to break above this level to confirm a reversal.
Investment Consideration
- Potential Action: Considering the mixed signals from the short-term bullish indicators and long-term bearish trend, investors might consider a cautious approach. Monitoring for a breakout above the 200-day moving average could be a signal for a stronger bullish trend.
Past performance is not an indication of future results. Always conduct your own research before making investment decisions.
FAQ – Cisco Q3 2024 Financial Performance
- What was Cisco’s financial performance in Q3 of fiscal year 2024?
- Cisco delivered strong financial performance with organic revenue at the high end of guidance and exceeded gross margin expectations, leading to better-than-anticipated earnings per share.
- How significant is subscription revenue to Cisco’s business model?
- Subscription revenue now accounts for more than half of Cisco’s total revenue, highlighting a successful business model transformation towards recurring revenue.
- What impact did the acquisition of Splunk have on Cisco?
- The acquisition of Splunk added significant recurring revenue and expanded Cisco’s software and security solutions portfolio.
- What new product did Cisco introduce in Q3 2024?
- Cisco introduced Cisco HyperShield, an innovative AI-powered security solution integrated into their network fabric.
- How much did Cisco return to shareholders in Q3 2024?
- Cisco returned $2.9 billion to shareholders in Q3 through share repurchases and dividends, totaling $8.5 billion year-to-date.
- What are Cisco’s expectations for future growth?
- Looking ahead, Cisco expects continued growth driven by innovation and strategic acquisitions, with a strong focus on enhancing their subscription services, integrating Splunk’s solutions, and promoting Cisco HyperShield.
Book Recommendations
- “The Lean Startup” by Eric Ries – For insights on innovation and business transformation.
- “Good to Great” by Jim Collins – To understand how companies can make the leap to superior performance.
- “Measure What Matters” by John Doerr – For strategies on setting and achieving impactful goals.
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This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content might not be suitable for your particular circumstances. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor.
