Cisco’s Recurring Revenue, Cybersecurity Will Drive Stock, Report Says

Increases in software subscription-based recurring revenue and strong growth initiatives in important areas like cyber-security are setting up Cisco Systems for a "stronger bookings growth trajectory" in fiscal 2019, according to a report by GBH Insights, a market researcher and predictive analytics company.

GBH Insights expects Cisco results for its fourth fiscal quarter -- slated to be released on Wednesday after the close of the market closes -- to be in line with Wall Street expectations with the "possibility of some modest upside on the top line based on our slightly improving checks on the security and switching segments in the US during the quarter," according to a report issued recently by GBH Insights.

[Related:Cisco's Duo Security Acquisition Part Of Intent-Based Networking Plan]

Wall Street analysts are expecting earnings of about 69 cents per share on sales of $12.7 billion, which represents a modest increase from the $12.5 billion the company reported for the third quarter.

The report, authored by GBH head of technology research Daniel Ives, suggests that while Cisco is seeing uneven results in "large-ticket traditional networking deals," it is executing better, successfully launching new product initiatives and focusing on recurring revenue.

The result, Ives wrote, is a better selling environment for Cisco and its partners, and an expanding pipeline heading into the coming year.

"The broadened Cisco portfolio and software-centric approach has been a catalyst for the company, as we believe the company’s multi-faceted hardware/software-centric approach is music to ears of customers and partners," Ives wrote.

Ives said Cisco's prospective acquisition of Duo Security, announced earlier this month, and its acquisition of BroadSoft, which closed earlier this year, may be key growth drivers for the company's software-centric strategy.

Duo, Ives wrote, may "further bolster Cisco's next-generation security offering around authentication and paves the way for significant cross-selling opportunities on the horizon in this key area of cybersecurity spending."

BroadSoft, meanwhile, has potential to "play a major role" in Cisco's cloud products portfolio, Ives wrote. "The company's ability to successfully transform (e.g. SaaS, subscription-based model) its business model over the coming years remains the biggest wild card in the eyes of investors."

Mike Girouard, executive vice president of sales at TekLinks, a Birmingham, Ala., solution provider that works with Cisco, said Cisco's transition to a software-first, recurring revenue model is "above average" compared to other legacy vendors.

"They're pushing many products to subscription-based services, which is smart," Girouard said, acknowledging that challenges remain, including dealing with administrative concerns like taxes, as well as nuts-and-bolts considerations like training and fine tuning the way partners and customers interact on subscription-based deals.

Kent MacDonald, vice president at Long View Systems, a Toronto-based solution provider that works with Cisco, said he's been impressed with the networking giant's move to consumption-based, software-focused models. "Partners like Long View have worked with Cisco as early adopters to take these solutions to market," MacDonald said, adding that he's looking forward to "the continued evolution and escalation of these solutions."