Cisco (NASDAQ:CSCO) recently introduced new solutions based on wireless standard that offer data transfer speed of up to one gigabit per second. The new solutions will enable businesses to download significant amount of web content and run streaming video at the same time. In this article, I want to explain how the trend in video streaming will favor Cisco's initiative with the new product. I particularly want to demonstrate how the rising internet video traffic will enable Cisco to make generate sales of the new solution. This factor will help Cisco to improve its revenues by 2% over the next few quarters.
How will Cisco be improved? According to Cisco's research, internet video traffic will represent 55% of all consumer internet traffic in 2016, up from 51% in 2011. Additionally, the sum of all forms of videos will be about 86% of global consumer traffic by 2016. Cisco's new solutions will benefit from this trend through increased patronage. This will boost the company's revenues and improve the price multiples of the company.
Cisco's sales growth is inevitable. In the third quarter of its report, revenues of service provider video were $1.29 billion, compared with $1.22 billion in the previous quarter. "Cisco is executing at a very high level in a slow, but steady economic environment. We are especially pleased with our ninth consecutive record revenue quarter," said John Chambers, Cisco CEO.
In the second quarter, revenue of service provider video was $1.22 billion, compared with $1.15 billion for the previous quarter. "We delivered strong performance this quarter with record revenue and earnings per share," said Chambers. "We're executing well on our three-year plan to drive earnings faster than revenue."
CISCO'S Video Streaming
CISCO has announced many incentives to strengthen its video division. It recently completed its acquisition of BNI Video for its back-office and content delivery network. The company's Cisco Videoscope was selected by GET, a leading cable operator in Norway, for video delivery service. Cisco developed the Cisco Aironet 3600 Series to sustain reliable connections at higher speed and better performance of mobile devices.
The new video streaming products are based on next-generation 802.11 a.c wireless networking standard. They enable companies to give end-users access to bandwidth-intensive applications. Businesses can easily support devices connected to networks for streaming video, data back up and transfers, and web conferencing. The new products are arriving at a time when companies are becoming more complex and place great pressure on the network due to the rising number of employee-owned devices. Fortunately, internet video traffic is driving revenue. This is important to Cisco as it strives to make greater sales than its rivals.
When we take a look at the video revenues in recent reports, we notice that they showed quarter-on-quarter growth. It is clear that Cisco's video revenues have improved compared to the previous quarter. So it can be said that the sector is making progress.
With a price to sales ratio of 2.60, Cisco is trading reasonably, even though it has a gross margin of 60.70%. The new products will increase the company's total revenue, make its price to earnings ratio more attractive, and continue to make Cisco's $16.25 billion debt to be sustainable.
How is Cisco performing in relation to its competition? With price to sales of 2.60, compared with 5.21 for Qualcomm (NASDAQ:QCOM) and 2.26 for Intel (NASDAQ:INTC), and price to earnings ratio of 13.04, compared to 17.95 for Qualcomm and 26.39 for Intel, Cisco is not doing badly. Intel has been trying to get its chips into internet-ready televisions. Cisco has the technology it needs to compete with Intel. Qualcomm's Raptor-protected video streaming applications could be a competitor to Cisco's products, but Cisco's initiative will negate the effects of the Qualcomm product.
Based on the performance of Cisco's video streaming projects and its growth prospects, we can say its new products will improve the fundamentals of the company. Looking at Cisco's price multiples in relation to Qualcomm and Intel, we think Cisco is a buy for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.