Lesson 6 of 7
Growth that was bought
Cisco's security revenue rose 59 percent in fiscal 2025 and its networking revenue fell. The acquisition note supplies the figures that separate the two.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- A normalised growth rate has to be computed on a constant perimeter, and an acquisition changes the perimeter part-way through a year.
- Cisco's product categories separate most of the effect: security revenue rose from 5,075 million dollars in fiscal 2024 to 8,094 million in fiscal 2025, while networking fell from 29,229 million to 28,304 million.
- The acquisition note gives the two figures that settle it: the contribution since the acquisition date, and the pro forma combined year.
A growth rate that spans an acquisition is measuring two companies. The filings supply enough to separate them, but only if you read the note before the rate.
Cisco product revenue by category, three filed fiscal years
| Category | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Networking | 29,229 | 28,304 | 34,668 |
| Security | 5,075 | 8,094 | 8,232 |
| Collaboration | 4,113 | 4,154 | 4,300 |
| Observability | 837 | 1,055 | 1,095 |
| Total product | 39,253 | 41,608 | 48,295 |
Where the acquisition lands
Cisco completed its acquisition of Splunk on 18 March 2024, at 157 dollars a share and approximately 27 billion dollars in consideration. The purchase consideration of 27,090 million dollars was allocated to 19,301 million of goodwill, 10,550 million of purchased intangible assets and 2,761 million of net liabilities assumed.
Fiscal 2024 ended on 27 July 2024, so it contains roughly four months of the acquired business. Fiscal 2025 contains a full year of it. Fiscal 2023 contains none.
The two numbers that separate the years
The business combination note gives both. Fiscal 2024 includes revenue of approximately 1.4 billion dollars and a net loss of 557 million dollars attributable to the acquired business since the acquisition date. And the unaudited pro forma information states what the combined group would have reported had the acquisition completed at the start of fiscal 2024: revenue of 56,761 million dollars and net income of 9,280 million.
Set those against the reported figures of 53,803 million and 10,320 million and the perimeter effect is measurable rather than inferred.
Two growth rates, both correct
Reported revenue rose 5.3 percent in fiscal 2025, from 53,803 to 56,654 million dollars. Against the pro forma fiscal 2024 figure of 56,761 million, which is the constant-perimeter base, the year was fractionally down.
The category table says roughly the same thing from a different direction. Security revenue rose 3,019 million dollars between fiscal 2024 and fiscal 2025, an increase of 59.5 percent, while networking, the largest category, fell 3.2 percent.
What to write in the table
Two lines, not one. A line for the reported growth rate with the years it spans, and a line for the perimeter-adjusted rate with the source of the adjustment named. Then a sentence saying which one you are using in the normalised figure and why.
For a normalisation the usual answer is the adjusted one, because the question being asked is what the business as now constituted produces in an average year, and the pro forma figure is the only published number that puts both years on the current perimeter.
Check yourself
Why does the reported fiscal 2025 growth rate of 5.3 percent need adjusting for a normalisation?
- Because the revenue was misstated
- Because fiscal 2024 contained only about four months of the acquired business and fiscal 2025 contained twelve, so the two years are different perimeters
- Because the fiscal year end changed
Show the answer
Answer: B.
The acquisition completed on 18 March 2024, part-way through a year ending 27 July 2024. The rate is correct as reported and is not a like-for-like comparison.What does the pro forma disclosure of 56,761 million dollars of fiscal 2024 revenue represent?
- The revenue the company expects next year
- What combined revenue would have been had the acquisition completed at the start of fiscal 2024
- The revenue of the acquired business alone
Show the answer
Answer: B.
It is the unaudited pro forma figure required with a business combination, and it is the base that puts both years on the current perimeter.Between fiscal 2024 and fiscal 2025, what did Cisco's networking category do?
- Rose 59.5 percent
- Fell 3.2 percent, from 29,229 million dollars to 28,304 million
- Was not separately disclosed
Show the answer
Answer: B.
Security rose 59.5 percent over those years while networking, the largest category, declined, which is the split the total revenue line conceals.Sources
- Cisco Systems, Inc., Form 10-K for the fiscal year ended 25 July 2026, filed 2026-09-02, accession 0000858877-26-000132: the disaggregation of revenue, the business combinations note, the acquisition of Splunk Inc. on 18 March 2024 and the unaudited pro forma information.
- Cisco Systems, Inc., Form 10-K for the fiscal year ended 27 July 2024, filed 2024-09-05, accession 0000858877-24-000017.
- ASC 805, Business Combinations: the acquisition-date disclosures and the pro forma information.
What this leaves out
- The contribution figure of approximately 1.4 billion dollars is given as approximate in the filing itself, so any arithmetic using it is approximate too.
- The product categories are the company's own disaggregation and are not a clean split between acquired and existing business. They are used here as corroboration of the pro forma figures, not as a substitute for them.
- Cisco appears here as a source of filed figures. Nothing in this lesson says or implies anything about its reporting.
- Nothing here is advice about any security.