Cisco Boosts Software Offerings with AppDynamics Buyout

Cisco Systems, Inc.CSCO announced Tuesday that it is on track to acquire AppDynamics, Inc.,a business software company based in the U.S. for approximately $3.7 billion. The development comes ahead of AppDynamics' IPO registration that had an estimated price band of $12 to $14 per share. Cisco's offer of $26 per share was roughly double that price band and an irresistible proposition to miss for AppDynamics.

The deal is expected to close in Apr 2017 and will involve both cash and equity awards.

Although shares of Cisco opened Wednesday at $31.04 rising 1.43% during early trading, the stock came down all the way to close the session at $30.70, posting a gain of only 0.33% on an end of day basis. Notably, the stock has performed more or less in-line with the Zacks Computer Networking industry over the last one year. While the industry gained 29.9%, Cisco is up 31.1%.

The moderate performance of the stock could be attributed to slowing order growth from service providersas well as an intensifying competitive landscape due to the emergence of several smaller players.

Why This Move?

With the emergence of cloud computing, many legacy technology companies which remain dependant on on-premises setups for enterprises are shifting their focus on the software space.

Not surprisingly, with CEO Chuck Robbins at the helm, Cisco has also been increasingly focusing on the software space. Moreover, with the emergence of less expensive routers and switches in the market, the company remains focused on other business verticals such as the "Internet of Things," security and collaboration to remain competitive and relevant.

How is Cisco Poised to Benefit?

The AppDynamics deal is likely to strengthen Cisco's software offerings targeted at large enterprise clients.The objective of the deal is to drive growth for the company beyond its networking business that still remains the mainstay for the technology giant.

Also, as AppDynamics is compatible with cloud services offered by various companies such as IBM IBM and Alphabet GOOGL -owned Google, the prospects look bright for Cisco going ahead.

Per an IDC report, worldwide spending on public cloud services is estimated to reach $195 billion in 2020 that is currently growing at a CAGR of 20.4%. With increasing adoption for the cloud, technologies such as those offered by AppDynamics look poised to witness decent growth, which translates to a positive impact on Cisco's bottomline.

Cisco Systems, Inc. Price and Consensus

Cisco Systems, Inc. Price and Consensus | Cisco Systems, Inc. Quote

Zacks Rank & A Key Pick

At present, Cisco carries a Zacks Rank #4 (Sell).

A better-ranked stock in the broader technology space is Seagate Technology plc STX sporting a Zacks Rank #1(Strong Buy). You can see the complete list of today's Zacks #1 Rankstocks here.

Notably, the consensus estimate for Seagate's current year has improved to $3.80 from $3.78 over the last 30 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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