The Six Five team discusses Cisco Q3 FY24 earnings.
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Transcript:
Patrick Moorhead: A little background here. If you look at how Cisco had done historically, previous four quarters had beat on EPS and beat on revenue. The big surprise though was last quarter’s guide and the reason that they had a beat-beat for this quarter is because they beat the lower expectations and the stock, at least in the after hours was up 7%. But it’s all about the digestion of the amount of networking equipment that they sold in. A couple of highlights for me, software, big percentage of revenue, over 50%, I think 54%. You combine software and services, 65% of revenue, and that is just an astounding turn of events.
When you think of Cisco, you think of network equipment, they are 65% software and services company. And sure, part of that is network as a service, some of that as security service, but it’s a services company, baby. I mean even Amazon is infrastructure as a service and PaaS and things like that. Final comment, a change here. Gary Steele is now president of Go-to-Market and he’s basically the chief revenue officer. Unclear if he’ll get all the marketing capabilities as well, probably the Go-to-Market capabilities beyond the brand. But Gary Steele, we’ve had him on The Six Five many, many times. I’m interested to have a conversation with him.
Daniel Newman: Yeah, I think that was a nice consolidated messaging on what’s going on there, Pat. Look, there’s a lot of positive in the quarter. I mean, of course, on a year-over-year basis, a lot of people, it’s interesting because it was down revenue wise, somewhat precipitously, but the business is squaring off in a way that I think is really, really positive. There was the right growth in the right area. So for a number of quarters in a row I’ve been talking about you have to watch the subscription and the ARR metrics. The market wants to understand is this company making the pivot? Now, of course it’s great that the Splunk revenue is now included.
So the company’s ARR revenue is at $29.2 billion. That’s not nothing. And with Splunk, they’re up 22% year-on-year, and the product ARR is up too, so they’re able to add subscription to the products they’re selling. And that’s up 44%. And now Pat, the other thing that’s interesting, and you said this, but 54% of their revenue is subscription. They’ve made the pivot everybody, this is not a hardware box company. Now the way stocks been valued is kind of like it is.
Patrick Moorhead: Exactly.
Daniel Newman: And so this is one of those companies that has really changed its tune. They’ve met and done what they’ve promised they would do to the market and they haven’t really gotten a lot of credit for it yet. And so I put it in a category of companies that people need to be paying attention to because they’re executing on their plan. The Splunk thing will give it more visibility there. And I like the move with Gary. I know Gary very well. I think he’s going to come in and do a really good job. That meant Jeff Sharritts is out after a very long tenure there. But you know what? I’m sure Gary will come in, he’ll bring the energy, he’s going to bring growth. He knows how to grow businesses. He’s got the track record and obviously he delivered Splunk to Cisco, which was a big deal too.
Last thought on this one, they did beat-beat rates. So while he did say they were down, they did beat-beat rates and right now, I swear the guidance is everything. You and I constantly go back on these earnings conversations and we talk about the what’s it, why is it down so much? Why is it down so much? They did great. They beat, they beat, they beat. Well, the problem was they also want a raise, didn’t get a raise. So all right, they got it all, stock went up a little bit, but I still think the company’s probably a little bit undervalued for how important it’s to the network, to the Edge, to the branch, to the whole opportunity as well as security and also just where it evaluates for how much subscription it now has.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
