Cisco Systems (NASDAQ:CSCO) is best known for making networking hardware, including switches used in data centers. But it’s one of the company’s smaller units that has been making headlines since the start of the coronavirus pandemic. Use of Webex — Cisco’s software for hosting virtual meetings — has taken off, as companies struggle to keep employees who are working from home in touch and productive. The massive increase in the utilization of Webex has helped Cisco stock weather the stock market’s turmoil better than many tech companies.
Cisco Reports a Huge Increase in Webex Usage
Even before President Donald Trump declared a national state of emergency last Friday, companies were beginning to make arrangements for employees to work from home.
Having teams work remotely isn’t quite as simple as setting individuals up with a laptop and e-mail access. Meetings are a big part of any business, as is collaboration among team members. Webex has been enabling remote team meetings since 1995 (Cisco bought the company in 2007). The unit has been improving its service over the years, adding features like videoconferencing and automatic call transcripts.
With companies desperate to ensure that team members communicate effectively, it’s not surprising that the utilization of Webex has skyrocketed. In February, Webex traffic from China was 22 times above its normal levels. In parts of Europe, the service’s traffic was up 80% during the week that ended on Mar. 13. Early last week, the company told CNBC that in the first 11 days of March, Webex had hosted 5.5 billion minutes of meetings.
Cisco will only be paid for some of these meetings, as a portion of them were free due to trial offers from Webex. But the service’s paid subscription numbers will likely rise if the pandemic continues and more companies formally adopt the service.
Companies That Enable Remote Work Are Outperforming Other Tech Stocks
The past couple of weeks have been tumultuous for the markets. However, some tech stocks are outperforming others.
With Apple’s (NASDAQ:AAPL) retail stores closed and its latest iPhones in limited supply, its stock dropped 17% last week. That’s despite announcing a slew of new products.
Look at companies with products that enable working from home and you’ll see a different story. Their solutions are wildly in demand during the current crisis. Even if many users are taking advantage of free trials, investors think that their companies will see the advantages of the technology and invest in paid licenses.
Cisco stock fell 5% last week, outperforming the market. Its outperformance can be largely attributed to the popularity of its Webex software. Zoom Video Communications (NASDAQ:ZM) offers remote video conferencing solutions. Its stock jumped 21% during the past week. Slack Technologies (NYSE:WORK) makes group collaboration software; its stock jumped 13.5% last week.
The Bottom Line on Cisco Stock
If you’re looking for a stock that can advance in the short-term due to increased adoption during the coronavirus pandemic, there are better options than Cisco. ZM and WORK are both significantly outperforming CSCO.
Cisco may be the better bet for long-term investors, though. Sure, adoption of its Webex virtual meeting software is rising. But Webex is just one facet of Cisco’s business.
Analysts polled by CNN Business have, on average, rated Cisco stock a “buy” with a median 12-month price target of $49.00. That brings it in-line with levels last seen in August after Cisco’s shares dropped on worries of slowing enterprise data center spending and the lingering effects from the U.S. trade war with China.
In other words, the headwinds Cisco was facing before the coronavirus from China kicked off the market meltdown are already priced into that target. And if the coronavirus keeps people working from home for a longer period than expected, Cisco is insulated better than many tech stocks because of Webex’s increased popularity.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
