How Industry Analysts Feel about Cisco-AppDynamics Deal



AppDynamics is widely believed to be synergistic but pricey deal

In this article, we’ll look at how analysts view Cisco’s AppDynamics deal. Citing Brian White, an analyst with Drexel Hamilton, Barron’s Blog stated that the AppDynamics acquisition announcement is Cisco’s (CSCO) “thinking outside the Cisco box,” which “not only expands the company’s software portfolio but plays into the growing importance of applications during this digital transformation.”

Citing Pacific Crest Securities analysis, Zacks said, “AppDynamics is a natural fit for Cisco’s portfolio, in our view, given its ability to monitor legacy applications and infrastructure and its growing presence in next-generation application deployments.” Jess Lubert, an analyst with Wells Fargo, believes that Cisco is paying a “hefty multiple,” at 18 times TTM, but feels the AppDynamics acquisition worth it, as “the company’s strong growth and gross margin profile when spread across the Cisco cost base suggests the transaction is likely to prove accretive for Cisco over time.”
cisco's revenue stagnation

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Cisco’s revenues stagnation

AppDynamics’ rapid revenue growth is likely to provide a boost to Cisco’s revenues. As the above chart shows, Cisco’s revenues have stagnated in the last couple of years.

Notably, Cisco has spent ~18 billion and acquired 45 companies in the last five years. Looking at its revenue trend, it’s apparent that these acquisitions have failed to provide any top-line growth to Cisco. It’s yet to be seen if AppDynamics breaks the trend and provides a much-needed stimulus to Cisco’s top line.


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