Posted by: Peter Burrows on August 8, 2006
If there was ever a company that seemed to have figured out the mysteries of investor behavior, it was Cisco Systems during its glory days in the 1990s. By beating quarterly estimates by a penny for seemingly years on end, the company managed to keep CSCO shares climbing in a nice predictable pattern: up and to the right.
Not anymore. In recent years, Cisco’s top executives have become so mystified by Wall Street’s unpredictable reaction to financial news that they each put down $20 when the company announces its quarterly numbers. The bet: who can guess where the stock will be 24 hours after the news hits the wire.
Take this quarter, when Cisco blew past analysts’ growth targets, but with less impressive growth in profits. While clearly good news, senior vice president Charlie Giancarlo says the bets were all over the map. Given the near 10% run-up in CSCO shares in after-hours trading, Giancarlo admitted his guess was way too conservative. “I’m flabbergasted, but then I haven’t been the winner very often.”
Giancarlo says Cisco’s operations and sales chief, Rick Justice, tends to take home the winnings most often. As for CEO John Chambers, “he’s always the high bet. But then, John’s generally an optimist.”
Giancarlo is the first to admit that Cisco never really did have investor’s pegged as well as it seemed. “When you’re growing at 50-60% a quarter, it’s not a sign that you really understand what investors are thinking. It’s a sign that you’re involved in a really hot market.”
Still, I can understand this need to take bets, given what must seem like totally random—and usually disappointing—treatment from Wall Street. After all, it’s been more than half a decade since Cisco righted its ship after the Net boom went bust. For the most part, it’s put up numbers that other $20 billion-plus companies could only imagine—usually posting obscene net profits of more than 20%, while growing the top-line more than 10%. Of all of the maturing tech giants that have struggled to keep investors interested in recent years (think Microsoft, Intel, Oracle, IBM), Cisco has arguably done the most impressive job of maintaining profits while building new growth opportunities. Maybe this quarter’s surprising growth figures will finally lead to a more coalesced view of the company among investors—and ease the need of Chambers & Co. to resort to gambling to help make sense of their world.