Cisco's (NASDAQ:CSCO) CEO, Chuck Robbins, would like you to know that people are getting sick and tired of working from home and desperately want to return to the office. This report comes on the heels of a fairly narrow win on Cisco's earnings report recently, as the company discovers that the ongoing work-at-home dynamic that's powering a lot of business today is alive and well. This suggests that the reports from Robbins and the reports from the company's earnings pool are somewhat connected.
Better Than Expected, If Only Just
The good news for Cisco is that it turned in beats in both earnings and revenue. The beats weren't exactly pronounced, but they were present. Earnings came in at $0.79 per share against Refinitiv's expectation of $0.76, and revenue came in at $11.96 billion against $11.92 billion expected as well. A win is a win, and you can't take that away from Cisco.
However, this win actually represents an ongoing trend for Cisco: this is the fifth quarter in a row that revenue has declined for Cisco, as a weaker economy combined with the ongoing work-at-home movement is driving down business in Cisco's primary stock in trade: network components. With customers working from home and turning to cloud-based services to keep employees both moving along and staying remote, that's put a lot less demand on Cisco's line of product.
A breakdown by market segment provides further insight; infrastructure platform revenue is down 3% against this time last year, coming in at $6.39 billion total. That still beats estimates of $6.23 billion, but in this case, all that really says is Cisco didn't do as badly as analysts were thinking it would.
And Speaking of the Analysts...
Those analysts, meanwhile—as based on our latest research—are skeptical about Cisco's future going forward, to the point where the company is currently listed as a “hold”. Six months ago, however, it was a “buy”, which demonstrates what's been going on in the market. The ratios comprising Cisco's consensus rating, meanwhile, have been fairly stable for the last six months.
Six months ago, the company had 14 “hold” ratings and 14 “buy” to its credit. Three months later, that shifted to 15 “hold” and just 11 “buy”. A month ago, one of those “buy” ratings slipped leaving us at 15 “hold” and 10 “buy,” which is exactly where we are today.
Meanwhile, the price target has slipped from its heights of six months ago, but has been seen recovering. Six months ago, it was at $49.87 before dropping to $46.70. It went up to $47.43 a month ago before seeing one more jump to $48.09 today. With the share price currently sitting at $45.98 as of this writing, it suggests there's some room for upside potential here.
Desperately Seeking a Return to the Office
As we noted previously, Chuck Robbins is pretty convinced that people want to be back at work in their offices as opposed to working where they currently are. After all, people get tired of looking at the same four walls every day, even if the commute is measured in feet, never requires a drive through inclement weather, and doesn't feature many of the more adverse elements of office work like office politics and the like.
Still, there's little doubt that Robbins is right on some level. Work-at-home philosophies work great for some people, but certainly not for everyone. Some people are undoubtedly eager to get back into the office and enjoy conversations with adults other than their spouses. Some people likely want to get back to picking up that morning latte from Starbucks (NASDAQ:SBUX) and getting lunch out too. With even Cisco itself offering work-at-home options through June 30, however, seeing a lot of employees go back to the office any time soon may be a forlorn hope. Salesforce (NYSE:CRM) recently announced a near-permanent flex schedule of one to three days remote every week, and Twitter (NYSE:TWTR) and Dropbox (NASDAQ:DBX) have both offered permanent remote work as an option to all employees.
That's going to weigh heavily on Cisco's earnings for some time to come. With office occupancy rates in Manhattan around record lows by some reports, the idea that businesses will be in a hurry to buy infrastructure systems that need to be installed in offices is a bit of a long shot. It's hardly universal—Cisco would never have made almost $12 billion last quarter if it were—but it's certainly going to weigh on the company for the near-term.
With work-at-home no longer a perk and now a necessity—and one that's likely to be at least part of the landscape going forward—Cisco will need a new business model, and quickly. The prominence of the office will not be what it once was, quite possibly ever again.
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