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Cisco’s Steady Q2 Helps, But Enterprise IT Sector Still Jittery

Behind the scenes, Cisco Systems ( CSCO ) did what it was supposed to do last quarter, and did it a little more profitably: It provided reliable networking gear and helped others compute and communicate faster, even as formerly highflying enterprise technology stocks crashed. After Wednesday’s close, Cisco posted fiscal Q2 earnings and sales that beat analyst expectations, as did its earnings and sales outlook for the current quarter. The company’s CEO, however, acknowledged that things have been a bit dicey. While the first 10 weeks of the second quarter, through Dec. 31, were “very much in line with what we expected … (in) those last three weeks (through Jan. 23), we saw customers just pause a bit … to see what’s going on,” Cisco CEO Chuck Robbins said on the company’s earnings conference call with analysts. “The (data center) campus refresh activities, we saw customer say, ‘Hey, our infrastructure is working. Let’s hold on that (purchase) before we see which way we’re willing to go.’ ” Added CFO Kelly Kramer: “Our guidance is prudent. We expanded our range to three (percentage) points of range rather than two, because we see things as more volatile.” For the period ended Jan. 23, Cisco said per-share earnings minus items rose 7.5% from the year-earlier quarter to 57 cents minus items, while revenue slipped 1% to $11.8 billion. Excluding year-earlier performance from the television set-top box business Cisco recently sold, revenue rose 2% . Analysts polled by Thomson Reuters had expected 54 cents and $11.75 billion. A year before, Cisco’s EPS ex items had risen 13% to 53 cents, and sales grew 7% to $11.94 billion. Cisco completed the sale of its set-top box unit to Technicolor on Nov. 20, for $600 million. Excluding that business, Cisco had guided Q2 adjusted EPS to 53-55 cents, on revenue of flat-to-2% growth. For fiscal Q3, Cisco guided to EPS ex items of 54 cents to 56 cents and to a year-over-year revenue rise of 1% to 4%. Analysts had modeled 54 cents and a 0.8% decline. Cisco is the No. 1 maker of the seldom-seen but increasingly used, lightning-fast switches, routers and other networking gear behind most telecom and Internet service providers, helping to run many data centers for many Internet cloud-based operations. Cisco stock, which rose 9% in after-hours trading Wednesday after its earnings release, was up more than 9% in early trading in the stock market today , near 24.50, despite another tough start to the market overall amid global economic worries. In Wednesday’s regular session, shares fell 0.6% to 22.51, 25% off an eight-year high of 30.31, set last March. Smaller rival Juniper Networks ( JNPR ) was up nearly 1% in early trading Thursday. Cisco’s latest results helped the outlook for information technology stocks, which crashed last week after data analytics software maker  Tableau Software ( DATA ) and social media firm LinkedIn ( LNKD ) gave disappointing guidance. As global fears of a slowing economy rose, so did worries of slower IT spending. Analytics firm Splunk ( SPLK ), security vendor  Palo Alto Networks ( PANW ) and cloud software leader Salesforce.com ( CRM ) were among stocks that fell hard last week, though the latter two have recovered somewhat this week. All three stocks, however, were down in early trading Thursday, as was Tableau. Cisco: Challenging Macroenvironment “We delivered a strong Q2 and are managing the business extremely well in a challenging macro environment,” Robbins said in the company’s earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term, while investing in the innovation to lead our customers into the future.” As with the sale of its set-top box business, Cisco has been shedding slow-growth lines of business while making acquisitions in faster-growing arenas. Last week, Cisco announced its agreement to acquire Jasper Technologies, which delivers a cloud-based Internet of Things (Iot) service platform, for $1.4 billion.  The deal is expected to close this fiscal quarter. The company last quarter also completed the purchases of Portcullis, a digital security operation; Lancope, a security analytics firm; ParStream, another analytics specialist;  and 1 Mainstream, an on-demand streaming-content company. And on the call, Cisco executives said they recently completed the acquisition of Acano to help accelerate Cisco’s collaboration strategy to deliver video more broadly. In November, Cisco entered a “strategic partnership” with Ericsson ( ERIC ) which both companies say will improve their sales by the second half of this fiscal year. Robbins told analysts that Cisco and Ericsson “have begun to close transactions together. I would not translate that to any of the numbers we put out today. … We’re at the handful stage right now, but we see that accelerating.” “We delivered a strong Q2, and are managing the business extremely well in a challenging macro environment,” Cisco CEO Chuck Robbins said in the earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term while investing in the innovation to lead our customers into the future.”  

Are We Near Peak Twitter? Usage Weakens Again Despite New Features

Twitter ( TWTR ) reported late Wednesday that user growth slowed for the fourth consecutive quarter in Q4 as it guided Q1 revenue below consensus estimates, raising concerns that usage may be peaking. The average monthly active user base rose 9% year over year in Q4 to 320 million. Wall Street had expected Twitter to report a 12% rise in users to 323 million. Growth has cooled from 18% in Q1, to 15% in Q2 and 11% in Q3. Excluding “SMS Fast Followers,” monthly active users rose 6% annually to 305 million but fell from 307 million in Q3. Adjusted earnings rose 33% to 16 cents a share. Analysts polled by Thomson Reuters had expected 12 cents. Revenue jumped 48% to $710.5 million, above the $709.9 million consensus expectation. Twitter sees Q1 revenue of $595 million-$610 million, below Wall Street views of $627.1 million. Shares declined 3% in late trading, after rising 4% in the regular session. User growth concerns have depressed Twitter stock, which sunk to an all-time low of 14.31 on Tuesday. Twitter’s report followed LinkedIn’s ( LNKD ) stock crash last Thursday after the professional networking firm gave guidance far below the Wall Street consensus estimate, while also reporting Q4 earnings that beat. The continued slowdown in Twitter usage came despite a series of new features it rolled out last year, including video tool Periscope and Moments. Earlier Wednesday, the social media network said it is testing a new feature that would make the microblog look a bit more like its No. 1 rival, social networking king Facebook ( FB ). ‘Few – If Any – Bright Spots’ Chilton Capital Management economist Samuel Rines told IBD via email that “the user metrics — the key to sustainable future growth — collapsed,” noting that active users fell in the U.S. and were flat internationally. “The decline in users was the truly disappointing part of the release,” he said. “And it is even more disheartening given that there is an election cycle, and (Republican presidential candidate) Donald Trump’s tweets should have been at least somewhat of a draw to the platform. There were few — if any — bright spots in the release.” Rines also directly attributed Twitter’s soft Q1 revenue guidance to its weak user growth. “It now becomes a conversation around whether we have seen peak Twitter usage,” he said. “And management will have a difficult—if not impossible job of proving otherwise without a sudden reacceleration in user growth. It’s tough to see how product usage accelerates—at least with the current product and rate of innovation.” On a call with analysts after the release, Twitter CEO Jack Dorsey said the company “saw some really promising growth with the test of the timeline (changes). We think there’s a lot of opportunity in our product to fix some broken windows and confusing aspects of our service that we know are inhibiting growth.” But user retention rates were positive in Q4, said Twitter CFO Anthony Noto on the call. “The retention rate of those users that we either resurrected or that we acquired new was strong. In fact, new monthly active users acquired through marketing efforts were performing better from a retention rate standpoint vs. new organic MAUs we acquired.” Limited Potential? “So, we will continue to integrate marketing into our strategy,” Noto added. “We are going to simplify the product, but we also have to clearly communicate its value. Marketing will play that role.” In an industry report on Wednesday before the release, Cowen and Co. analyst John Blackledge handed Twitter stock a price cut, to 17 from 26. Blackledge also he lowered revenue estimates for Twitter for 2016 through 2021. Advertising, which makes up 90% of Twitter’s total revenues, will “see continued deceleration over time,” RBC Capital Markets analyst Mark Mahaney wrote in a report last week. “Our concern for some time has been that Twitter’s lack of real-time commercial intent (a la Alphabet ( GOOGL )-owned Google) or detailed, authentic profiles (a la Facebook) will eventually limit Twitter’s growth potential.”

Twitter Shifts More Like Facebook — Flap To Follow, Or More Users?

Twitter ( TWTR ) is testing a new feature that would bring major changes to how people view tweets in their timelines, making the microblog look a bit more like its No. 1 rival, social networking leader Facebook ( FB ). Twitter said that it would start displaying tweets by relevance instead of its usual reverse-chronological-order approach. Some industry observers say that the change could help Twitter bring everyday users aboard rather than keep the service in its current status as a niche haven heavily used by hardcore tweeters such as PR people and journalists. The new feature “helps you catch up on the best Tweets from people you follow,” Twitter said in a blog post on Wednesday, a few hours before the company’s Q4 earnings release . With the new service, “tweets you’re most likely to care about will appear at the top of your timeline — still recent and in reverse chronological order. The rest of the Tweets will be displayed right underneath, also in reverse chronological order, as always. At any point, just pull-to-refresh to see all new Tweets at the top in the live, up-to-the-second experience you already know and love,” the company said. After getting feedback on the change and making tweaks, Twitter said that it would “be turning on the feature for you in coming weeks — look out for a notification in your timeline.” Users who dislike the new look “can easily turn it off,”  the company said. A tweetstorm of controversy arose Friday night after unconfirmed reports that the company planned to prioritize tweets based on user preferences rather than a real-time algorithm. Twitter has two groups to please, said Will McInnes, chief marketing officer of Brandwatch, which monitors and analyzes social media, after those reports emerged. Twitter’s user base is divided into “hardcore, weathered veterans, who know and love the platform just how it is, and those newbies that don’t get how it works and don’t stick around to figure it out,” McInnes told IBD via email. “But common to so much else in life, Twitter cannot remain in stasis just simply to placate the most vocal and motivated. How Twitter works must change, and employing an algorithmic timeline feels like a big, important shift to test out.” Earlier reports said that the social network was mulling upsizing its tweet limit to 10,000 characters from the current 140. Snappy, short tweets have been Twitter’s calling card since the company started in 2006. Twitter stock was up 5% in afternoon trading in the stock market today , near 15. Facebook stock was up 3%, near 103. Growth concerns have depressed Twitter stock, which sunk to a new all-time low of 14.31 on Tuesday. Twitter is down 79% from its all-time high of 74.73, touched in late December 2013. Twitter stock dropped 7% on Friday as business social network LinkedIn ( LNKD ) crashed almost 44%  after low guidance given with a quarterly report. Twitter sank more than 5% Monday and more than 3% Tuesday on difficult days for tech stocks, with Internet review site Yelp ( YELP ) dropping about 11% Monday after a midday earnings report . LinkedIn was trading up about 3% Wednesday afternoon.