How Lucrative Is Cisco's ūmi?

Oct.10.10 | About: Cisco Systems, (CSCO)

On Thursday, Cisco (NASDAQ:CSCO) announced ūmi, a home telepresence product.

Cisco's stock has languished significantly compared to many of its peers, since its peak in March 2000 and a nadir of about $10 in 2003. Can Cisco's ūmi do the magic to revive the stock?

Depending upon where you get your numbers from, you can project potential market for this device. Of the 105,480,101 households — a 2000 census number — in America, not too many will initially bother to invest in the $600 upfront plus a $25 monthly service. At some point in the future, however, the advent of household video teleconferencing will approach 100%; at that time, it may not be unreasonable to expect, for our analysis purposes, that a mere 3% of the households would adopt the Cisco ūmi.

What does this represent? A $900m in yearly services revenue. If you include a possible 250,000 new subscribers every year, or ~20,000 every month, you can add a further $120m to the revenue, putting the total over the $1B mark. In other words, this is definitely a $1B/year product.

If you are the Warren Buffett type of investor, it is time to do your math on Cisco stock performance in the future. With a trailing 12-month P/E ratio of 16.90, and projected average P/E ratios of 14.41 and 12.42, respectively for fiscal 2011 and fiscal 2012, it is good to be long Cisco, particularly since the P/E ratio for S&P 500, of which Cisco is a component, stocks is 21.28.

Disclosure: Author is long CSCO