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Cisco (CSCO) to Take Over CloudCherry, Expand Portfolio

Zacks Equity Research

Cisco Systems CSCO recently expressed its intention to acquire CloudCherry, a Customer Experience Management (CEM) company. The company anticipates the buyout to close in the first quarter of next year subject to customary closing conditions. Post the deal conclusion, CloudCherrywill join Cisco's Contact Center Solutions business.

Headquartered in Salt Lake City, UT, CloudCherryoffers predictive analytics, customer journey mapping, out-of-the-box integrations, and real-time solution for contact centers operators in the cloud or on-premises.

According to Cisco’s executive vice president of its Contact Center Solutions, Vasili Triant, “This is the next step in realizing our vision for cognitive collaboration in the contact center, enabling the delivery of the best, most personalized customer experiences, ultimately improving customer loyalty and lifetime value."

Shares of the company have gained 8.7% on a year-to-date basis, outperforming the industry’s rally of 6.7%.


Synergies from Buyout

The companies will work together to create a cognitive collaboration approach for customers operating contact centers in order to enhance customer experiences in real-time via cloud data analytics. This will help Cisco make more differentiated products, thereby providing customers with cross-selling facilities, discounts, service adjustments to ensure consumer satisfaction and loyalties.

The deal is significant due to Cisco’s goal  enhance Contact Center portfolio, particularly with respect to data analytics, AI, cognitive services, interoperability and ML that would eliminate resistance and make teams more productive with robust data privacy.

We believe that the acquisition will enable both the companies to better integrate technologies. With this buyout, Cisco’s customers will be able to experience greater flexibility in operations, enhanced multi-level security, increased awareness and greater administrative control.

Per an IDC report, worldwide spending on cognitive systems and AI is expected to reach over $47 billion by 2020, which is currently witnessing a CAGR of 55.1%.

Given the huge opportunity the sector has to offer, we believe that Cisco is well positioned to take on the competition head on and such buyouts are a step in the right direction.

To Conclude

Over the past few years, strategic acquisitions have played an important role in shaping Cisco’s growth trajectory. The company recently announced its plan to acquire Acacia Communications and Voicea.

The company had also announced that it has successfully closed the buyout of privately-held Duo Security. This acquisition will aid Cisco to deliver on its commitment of safeguarding customer data while focusing on people-centric secure enterprise IT approach.

Continuous strategic acquisitions should support Cisco in expanding product offerings, strengthening footprint in the security markets and building customer base. Further, these buyouts reveal the company’s intention to improve its software and service capabilities in order to diversify revenue streams toward sources of a more recurring nature. It is taking this initiative in a bid to mitigate the cyclicality associated with hardware sales.

However, these acquisitions are likely to keep Cisco’s operating margins under pressure, as it requires significant amount of new investments.

Zacks Rank and Stocks to Consider

Cisco carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Alibaba Group Holding Limited BABA, Chegg CHGG and Anixter International AXE. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alibaba, Chegg and Anixter is currently pegged at 28%, 30% and 8%, respectively.

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