Financial Performance

Cisco Beats Estimates, Forecasts 5-7% Growth

“We’re seeing the returns on the investments we are making in innovation and driving the shift to more software and subscriptions," CFO Kelly Krame...
Matthew HellerAugust 16, 2018

Cisco Systems shares jumped in after-hours trading Wednesday on better-than-expected quarterly results and a strong growth forecast that indicated its shift to software is gaining momentum.

For the fourth quarter, Cisco reported net income of $3.8 billion, or 81 cents a share, compared with $2.42 billion, or 48 cents a share, in the year-ago period. Adjusted earnings were 70 cents a share, with revenue rising to $12.84 billion from $12.13 billion in the year-ago period.

Analysts had predicted earnings of 69 per cents a share on revenue of $12.77 billion.

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“Our results demonstrate a combination of strong customer adoption of our latest innovations, the ongoing value customers see in our software and subscription offerings, and excellent execution across our customer segments and geographies,” CEO Chuck Robbins said in a news release.

“Our strategy is working and we believe that are well-positioned to capture growth across our portfolio with our pipeline of innovation,” he added.

In the extended session Wednesday, Cisco shares rose 6.2% to $46.59. The company also forecast revenue growth of 5% to 7% for the first fiscal quarter.

Like other legacy technology companies, Cisco has been shifting toward software and betting that subscriptions will generate strong recurring revenue as demand for its network switches and routers weakens.

Subscriptions, which provide a more steady revenue stream, represented 56% of total software revenue in the quarter.

“We’re seeing the returns on the investments we are making in innovation and driving the shift to more software and subscriptions,” CFO Kelly Kramer told analysts on a post-earnings call.

She noted that total deferred revenue rose 6% in the fourth quarter, with deferred product revenue up 15% and deferred services revenue up 1% for the year. Total deferred revenue combined with unbilled deferred was up 28%.

“There’s a lot of excitement about deferred revenue because it makes things more predictable — revenue doesn’t come in spurts,” Glenn O’Donnell, research director at Forrester Research, told MarketWatch. “People are excited about that for what it means for the predictability.”