expects annual revenue growth of between 5% and 7% through fiscal July 2025, driven by the continued expansion of its subscription business, the company announced Wednesday.
Cisco (ticker: CSCO) made the forecast during a half-day meeting with investment analysts, the first such session the networking giant has held since 2017.
Cisco expects 15% to 17% growth in compound annualized subscription revenue through 2025, with 2% to 4% growth in non-subscription business and 2% to 3% growth in services. By the end of the period, Cisco sees subscription revenue accounting for 50% of total revenue, up 30% in its last fiscal year. Cisco sees non-GAAP earnings increase in line with revenue growth, at 5% to 7% per year. Chief Financial Officer Scott Herren said in a Q&A on the call that the company sees potential to grow gross margins over time, but notes that Cisco also sees an ongoing tightness in component supply — and that the company continues to invest in new opportunities.
The new guidance is consistent with Cisco’s earlier forecast of 5% to 7% revenue growth for fiscal July 2022. In fiscal 2021, Cisco posted revenue of $49.8 billion, with earnings of $3.22 per year. part. Cisco reiterated its forecast for fiscal 2022 earnings of $3.38 to $3.45 per share.
In a move designed to highlight the company’s growth activities and provide greater 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 ones. segments.
The new “secure, flexible networks” segment includes switching, routing and wireless products. “Hybrid Work” includes collaboration and contact center products, such as WebEx. “End-to-end security”, as the name implies, is the security business of the company. “Internet of the future” includes optical networks, 5G and optical products. “Optimized Application Experiences” includes “observability” analytics products and cloud-based platforms.
Cisco said it sees a $400 billion addressable market in those markets by fiscal year 2025, up from the estimated $290 billion in 2021 — with another $500 billion in opportunities in adjacent businesses.
In another move designed to persuade investors to rate Cisco as a software company, Cisco also sends the Street to a number of new metrics to evaluate its business, including subscription revenue as a percentage of total revenue; annual recurring earnings, or ARR; and residual performance obligations, or RPO. Both ARR and RRO are metrics commonly used by cloud-based subscription software companies.
During the conversation, Herren said the ARR was $22.3 billion at the end of fiscal year 2021, an 11% increase over a two-year compound average. Year-end RPO was $30.9 billion, up 10% from a two-year compound annual rate — the total includes $16.3 billion in current RPO expected over the next 12 months.
In terms of capital allocation, Herren said Cisco remains committed to returning at least 50% of the free cash to holders. There had been some hope in the streets that Cisco would take a more aggressive approach to capital returns – the stock plunged into the red the day Herren discussed the topic.
Cisco shares are down 0.87% to $57.37.
Write to Eric J. Savitz at email@example.com