Cisco (CSCO) 1st Quarter Earnings: What to Expect

There’s no question that Cisco (CSCO) has benefited from the work-from-home (WFH) trend. The networking giant has touted the effectiveness of its WebEx video conference service, albeit a small part of the business, as rising to the demand of consumers during the pandemic.

But unlike smaller rivals such as Zoom Video (ZM) and Zscaler (ZS), which have surged amid the WFH boost, Cisco stock has been largely ignored. As with the broader tech sector, Cisco continues to transition its business to more software and subscription offerings. But investors still want to know whether the WFH shift has materially impacted Cisco’s bottom line. And is that transition deserving of a higher stock multiple?

These are some of the key questions investors will look to answer when the networking giant reports first quarter fiscal 2021 earnings results after the closing bell Thursday. The coronavirus pandemic has had a significant adverse impact on Cisco’s business which has forced enterprise and commercial customers to either delay orders or suspend projects entirely. The impact of purchase delays was particularly noticeable in the fourth quarter as Cisco suffered a 9% revenue decline.

While Cisco’s Webex collaboration platform and other SaaS-based solutions have put up tremendous growth during the pandemic, the revenue generated in that business has not been enough to offset the declines in its breadwinner segments such as routing and switching which are the backbones of many data-centers. As such, the market on Thursday will want assurances that Cisco can pivot quickly in growth segments such as security and cloud to offset the declines in its legacy businesses.

In the three months that ended September, Wall Street expects Cisco to earn 70 cents per share on revenue of $11.85 billion. This compares to the year-ago quarter when earnings came to 84 cents per share on revenue of $13.16 billion. For the full year, ending June 2021, earnings are projected to decline 3.7% year over year to $3.09 per share, while full-year revenue of $48.27 billion would decline 2.1% year over year.

While Cisco may certainly see a boost from WFH, there’s also the likelihood that enterprise purchases and deployments — which have been delayed in the previous two quarters — can potentially be an issue again this quarter as it would impact Cisco equipment sales which remains the backbone of many data-centers. In Q4 Cisco's total revenue came to $12.15 billion, falling 9% year over year. This yielded an adjusted EPS of 80 cents per share, down 4% year over year.

While revenue was down across the major segments, including a double-digit decline in the core infrastructure platforms business, Cisco’s Security business remains a bright spot for revenues, rising 10% year over year. While the decline in the top and bottom lines might appear disappointing, they were enough to beat consensus estimates. What’s more, the company reached its goal of extracting more-than half its total revenue from software and services — a notable achievement.

While the top-line results are not expected to be strong, given the pandemic and Cisco’s transition towards subscription business model, these are nonetheless bright spots which suggests Cisco is executing on its strategy. But on Thursday investors will want to see significant progress on the company’s ability to grow the top line, while transitioning to higher-margin services segments.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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