Cisco tops earnings, revenue expectations

Shares of Cisco rise after reporting its latest earnings beat.

Video transcript

JULIE HYMAN: Let's also talk about shares of Cisco, those shares are under pressure this morning, but not under much pressure, actually. They were down early-- down more earlier. Orders, the company said, fell 23% in the third quarter. They blamed a large backlog of products and lower demand from customers.

Cisco did forecast modest revenue growth in 2024. So it's that sort of push and pull that seems to be affecting the shares here. The sales forecast was above estimates, that order growth-- or the order decline in the last quarter, so that's the sort of balance, if you will, in this environment.

And Chuck Robbins, the CEO, did say demand is staying steady. He says, "An earlier increase in product shipments meant customers needed to absorb these shipments," right? So you're seeing sort of the disruptions in ordering that we've seen in a lot of companies.

BRAD SMITH: Yeah, and for anybody looking through an earnings report or even listening into a call like Cisco's, you'll often hear about what there ARR is, that Annualized Recurring Revenue, or even some of the RPO and their Remaining Performance Obligations. Remaining performance obligations essentially give them kind of this pipeline that they can deliver on. And that total short-term obligation grew to $16.9 billion.

Total product orders, as you mentioned, were down, actually. That was a little bit of a hit by about 23%, driven by a few of the factors, including macroeconomic, that Chuck had pointed out earlier in the call, essentially saying that global customer advisory and the board that they were able to meet with earlier in the month, they're still investing in key technologies. They're still trying to grow out that portfolio base.

But they're also moving towards more of a solution services or subscription-based revenue kind of pie here, if you think about it. And so 82% of their software revenues were subscription-based, and that's where they can perhaps lock in a little bit more recurring revenue, which is what investors might start to give a little bit more weight to in terms of a metric that they look at when they do hear of any of the Cisco Business updates or quarterly earnings reports.

JULIE HYMAN: Right. I guess judging from the stock reaction, it seems like they are sort of buying that narrative--

BRAD SMITH: Yeah, it seems so.

JULIE HYMAN: --that it's not worse.

BRAD SMITH: Not worse, yeah.