Cisco Systems (NASDAQ: CSCO )' recent acquisition of Splunk (NASDAQ: SPLK ) for $28 billion has elicited a varied response from market observers, with the deal causing a slight dip in Cisco's stock. The companies anticipate that the merger will fortify digital resilience, generate recurring revenue, and enhance gross margins in the first fiscal year following the acquisition.
Splunk's impressive $3.86 billion Annual Recurring Revenue (ARR) and a 73.8% adjusted gross margin are among the potential benefits that Cisco is set to gain from this deal. According to InvestingPro data, Splunk's gross profit margin for the last twelve months (LTM2024.Q2) is at 78.53%, with a revenue growth of 26.47%. The company's revenue growth for the next quarterly fiscal year (FY2024.Q2) is projected to be 14.0%. These figures underscore the potential financial benefits of the acquisition for Cisco.
Yet, some critics perceive this as a strategic move by Cisco to distract attention from its intensifying competition with rapidly growing entities like Arista Networks (NYSE: ANET ). An InvestingPro Tip suggests that Cisco has high earnings quality, with free cash flow exceeding net income, and it holds more cash than debt on its balance sheet. This suggests that Cisco's financial health may be more robust than critics suggest.
Concerns remain about the impact of the acquisition on Cisco's market share, which has been on a decline. The acquisition also doesn't seem to address this issue directly. According to InvestingPro data, Cisco's market cap is at 215.72B USD, with a revenue growth of 10.55% for LTM2023.Q4. These figures indicate that while Cisco's market share may be declining, the company's overall financial health remains strong.
The deal will see Splunk's CEO, Gary Steele, join Cisco's leadership team. This significant investment is expected to deplete Cisco's cash and equivalents reserve of $26.1 billion, which could strain its balance sheet and potentially mask underlying challenges. Yet, one of the InvestingPro Tips for Cisco is that the company has maintained dividend payments for 13 consecutive years, suggesting that the company's financial management is sound.
Analysts have given a 'Hold' rating on NASDAQ :CSCO stock, with Ittai Kidron of Oppenheimer being recognized as the most accurate analyst. The mixed reactions to the deal highlight the complexity of the situation and the uncertainty surrounding its potential outcomes. With the InvestingPro Fair Value for Cisco at 64.34 USD, the company's stock may still be an attractive investment despite the uncertainties surrounding the acquisition.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.