Cisco beats revenue estimates and positive guidance sends the stock higher

Cisco’s 2023 revenue guidance beat estimates

Cisco Systems issued positive Q4 results, beating estimates and updating the revenue guidance for 2023. While expectations were lower, Cisco posted a surprise revenue feat for the quarter:

• Reported revenue figure of $13.1 billion beat the $12.79 billion forecast
• $0.83 EPS in line with analyst expectations of $0.82
• Revenue growth guidance highlighted expected growth between the range of 4-6%
• Net income dropped 6% to $2.82 billion
• Total revenue grew 3.4% YoY

While revenues were the highlight of the report, profit margins missed the target. The adjusted gross margin for Cisco amounted to 63.3%, which is lower than both the 64.7% estimate and the 65.3% result shown in the previous quarter. Growth has been hard to come by for Cisco during a changing tech climate and macroeconomic outlook.

Cisco adjusted its EPS guidance for 2023 from $3.49 to $3.56. Secure Agile Networks, Cisco’s largest business unit also beat revenue estimates and delivered $6.09 billion. Internet for the Future, the second-largest business unit at Cisco, brought in $1.26 billion in revenue, missing the $1.36 target set by analysts.

Declining product orders pressure profit margins

Product orders are down for virtually all of Cisco’s business units and while revenue figures and guidance were positive, some analysts are still weary of things to come. Overall demand remains strong despite the noteworthy drop-off in product orders. Compared to the 31% order growth in 2021, Cisco faced a 6% decline this year. Tal Liani, an analyst at Bank of America, voiced concerns regarding the issue, while Credit Suisse analyst Sami Badri noted the 15% sequential product order growth as a sign of robust demand.

Q4 data showed that enterprise had dropped 15%, public sector orders – by 3%, and service provider orders – by 7%. Only commercial orders were up 1%.

Bearish tech outlook caps Cisco shares

The bearish sentiment caused by high inflation and fears of a recession has caused a massive sell-off in tech stocks in 2022. The Covid-19 pandemic also brought major shifts to the tech industry, with many companies adopting subscription-based service models. Cisco also aims to increase revenue through subscription-based software solutions and gradually change its core business of selling routers.

The company is also seeking to develop hybrid solutions for high-value corporate customers, combining traditional data centers and cloud-computing infrastructure.

The shift away from the core business and unpromising macroeconomic trends has grounded Cisco’s shares below the $50 mark for over two months.

Despite the tough climate, Cisco is actively bolstering its capacity to compete with Microsoft and Zoom, by acquiring Socio Labs to boost its video conferencing platform Webex.

A large portion of Cisco’s growth comes from acquisitions. The company had been actively acquiring cloud-computing firms since 2017 to grow its presence in the cloud infrastructure market.

Cisco maintains an attractive 4% dividend yield for long-term investors and despite stunted growth, the company is actively seeking to diversify its digital assets and refocus on revenue growth.

As markets take in the rising interest rates and the Federal Reserve maintains its stern position on inflation, growth for Cisco could be maintained at relatively modest levels.