Cisco predicts 5-7% revenue and profit growth through 2025
expects annual revenue growth of between 5% and 7% through July 2025, driven by the continued expansion of its subscription business, the company said on Wednesday.
Cisco (ticker: CSCO) made the forecast during a half-day meeting with investment analysts, the first such session hosted by the network giant since 2017.
Cisco projects subscription revenue growth of 15-17% on a compound annual basis through 2025, with growth of 2-4% for non-subscription activities and 2-3% for services. By the end of the period, Cisco expects subscription revenue to represent 50% of overall revenue, up from 30% in the last fiscal year. Cisco predicts an increase in non-GAAP earnings along with revenue growth of 5-7% per year. CFO Scott Herren said in a question-and-answer session on the call that the company sees gross margins increasing over time, but notes that Cisco is also seeing continued tension in component sourcing. and that the company continues to invest in new opportunities.
The new direction is in line with Cisco’s previous forecast of 5-7% revenue growth for the July 2022 fiscal year. In fiscal 2021, Cisco achieved revenue of $ 49.8 billion. million, with earnings of $ 3.22 per share. Cisco reiterated its earnings forecast for fiscal 2022 of $ 3.38 to $ 3.45 per share.
In an effort to highlight business growth activities and provide more insight into the business, Cisco is also changing the way it reports financial results, moving from three segments (infrastructure platforms , applications and security) to five new segments.
The new segment of “secure and agile networks” includes switching, routing and wireless products. “Hybrid work” covers collaboration and contact center products, such as WebEx. “End-to-end security,” as the name suggests, is the security activity of the company. “Internet for the Future” includes optical, 5G and optical networking products. “Optimized application experiences” include “observability” analytics products and cloud-based platforms.
Cisco said it projects a $ 400 billion addressable market in these combined markets by fiscal 2025, up from around $ 290 billion in 2021, with an additional $ 500 billion in opportunities at adjacent businesses.
In another move meant to persuade investors to rate Cisco as a software company, Cisco is also leading the streets in new metrics to assess its business, including subscription revenue as a percentage of total revenue; recurring annual income, or ARR; and the remaining performance bonds, or RPOs. ARR and RRO are commonly used metrics by cloud-based subscription software companies.
On the call, Herren said the ARR was $ 22.3 billion at the end of fiscal 2021, up 11% from a two-year compounded average rate. The RPO at the end of the year was $ 30.9 billion, up 10% from a two-year compound annual rate. The total includes $ 16.3 billion of current RPO, expected over the next 12 months.
Regarding the capital allocation, Herren said Cisco remains committed to returning at least 50% of available cash to holders. There had been some hope on the street that Cisco might take a more aggressive approach to return on capital – the stock fell in the red the day Herren brought up the topic.
Cisco stock is down 0.87% to $ 57.37.
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