Cisco sees revenue and profit grow 5% to 7% through 2025

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Cisco expects 5% and 7% annual growth in both profit and non-GAAP revenue in fiscal year July 2025.

Gabriel Bouys/AFP via Getty Images

Cisco Systems

expects annual revenue growth of between 5% and 7% through the July 2025 fiscal year, driven by the continued expansion of its subscription business, the company said Wednesday.

Cisco (ticker: CSCO) made the predictions during a half-day meeting with investment analysts, the first such session hosted by the networking giant since 2017.

Cisco forecasts 15% to 17% growth in subscription revenue on a compounded annual basis through 2025, with 2% to 4% growth in non-subscription business and 2% to 3% growth in services. At the end of the period, Cisco estimates that subscription revenue represents 50% of overall revenue, up from 30% in the last fiscal year. Cisco sees non-GAAP earnings growing in line with revenue growth, 5-7% a year.

Chief Financial Officer Scott Herren said in a question-and-answer session on the call that the company sees potential for increased gross margins over time, but notes that Cisco is also seeing continued tension in component supply and that the company continues to invest aggressively in new opportunities.

The new guidance is in line with Cisco’s previous guidance of 5% to 7% revenue growth for fiscal year July 2022. In fiscal year 2021, Cisco reported revenue of 49, $8 billion, with earnings of $3.22 per share. Cisco reiterated its fiscal 2022 earnings forecast of $3.38 to $3.45 per share. In the middle of the indicative ranges, Herren notes, the company would hit $60 billion in revenue and $4 per profit share by the end of the forecast period.

In an effort to highlight the company’s growth activities and provide more insight into the company, Cisco is also changing the way it reports its financial results from three segments (Infrastructure Platforms, Applications and security) to five new segments.

The new “secure and agile networks” segment includes switching, routing and wireless products. “Hybrid working” covers collaboration and contact center products, such as WebEx. “End-to-end security,” as the name suggests, is the business of enterprise security. “Internet for the future” includes optical networks, 5G and optical products. “Optimized Application Experiences” include “Observability” analytics products and cloud-based platforms

Cisco didn’t provide any financial breakdowns on those segments, but Herren said in an interview with Barrons that the company will provide Street with three years of historical quarterly data before the next quarterly earnings report. The company does not plan to provide quarterly guidance on individual segments, he added.

Cisco said it envisions an addressable market of $400 billion in its current business by fiscal year 2025, up from about $290 billion in 2021, with an additional $500 billion of opportunity in adjacent businesses. Asked how the company will approach additional opportunities, Herren said Cisco can grow through both organic growth and mergers and acquisitions. He also noted that the revenue forecast provided by the company through 2025 does not assume any major acquisitions.

In another move intended to persuade investors to value Cisco as a software company, Cisco is also leading the way in new metrics to value its business. These metrics include subscription revenue as a percentage of total revenue; annual recurring revenue, or ARR; and the remaining performance obligations, or RPO. ARR and RPO are common metrics used by cloud-based subscription software companies. CEO Chuck Robbins said Barrons that the company had just over $3 billion in subscription revenue when he became CEO in 2015, and the total is now around $12 billion, growing 23% over the period over a Compound annual basis.

On the call, Herren said the ARR was $22.3 billion at the end of fiscal 2021, up 11% on a two-year compound average rate. Year-end RPO was $30.9 billion, up 10% from a two-year compound annual rate – total includes $16.3 billion of current RPO, expected over of the next 12 months.

On 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 into the red the day Herren broached the subject. The CFO notes that the company has approximately $8 billion remaining on its existing share buyback authorization.

Asked about the more than four-year gap since his last analyst meeting, Herren said Cisco plans to make the meeting an annual event going forward.

Cisco fell 0.5% to $57.56 on Wednesday.

Write to Eric J. Savitz at [email protected]