Cisco Systems (CSCO – Free Report) has been shifting away from its legacy switching and routing business, and has been more focused on areas of high growth within the technology realm. This includes the cloud, the internet of things (IoT), cybersecurity, and enterprise collaboration. While they have not abandoned their legacy items, as they still have a solid revenue stream coming in from this segment, management has found that these new growth areas have begun to help its reoccurring revenues.
The success of this new focus was evident in their last quarter’s earnings announcement where these reoccurring revenues, in the form of subscription products and software sales accounted for almost 1/3 of total revenues. Specifically, subscription product revenues increased to 12% of sales which was an over +100% increase from just two years ago. Currently, management’s goal is to have reoccurring revenues to account for +37% of total sales, and for subscriptions to reach 20% of product sales by 2020. This goal seems very obtainable given their current course, and recent success.
The company is also branching out into cybersecurity, another high growth tech area, and they recently announced a partnership with INTERPOL share threat intelligence. This is the initial stage for both of these organizations to fight cybercrime. Further, Cisco recently relaunched its smart city platform. According to Larry Payne, SVP of Cisco, “It’s a solution that provides connectivity as well as analytics and security to multiple devices, such as sensors, streetlights, and video cameras.” This platform is currently being used by 34 cities, including Las Vegas Nevada.
One of the newest, and more interesting ways Cisco is moving into the internet of things (IoT) has been their recent collaboration with IOTA, “an open-source distributed ledger (cryptocurrency) focused on providing secure communications and payments between machines on the Internet of Things.” This new system is expected to be more efficient and easier to use than the common blockchain technology.
This overall shift by the company has not gone unnoticed by analysts, as they have increased price targets, and revenue expectations since the last earnings announcement. As you can see below, the stock price and future earnings estimates have jumped since management’s shift to more high growth technology areas.