Cisco May Have Captured A Unicorn In AppDynamics

Wunderlich believes Cisco Systems, Inc. CSCO may have captured a unicorn in its $3.7 billion purchase of AppDynamics, which helps businesses identify and fix bugs in their applications.

AppDynamics would boost Cisco’s security products and the company’s ability to scale performance management and security in the IoT and artificial intelligence space. AppDynamics would also complement Cisco’s Titration Analytics, which is the network/infrastructure performance management platform that was launched in June.

To IPO Or Be Bought

Interestingly, AppDynamics was on a path to price its IPO later this week, and the brokerage believes the consideration is a premium of more than 60 percent above IPO price discussion.

“In our view, the price reflects a negotiation to capture after market performance of a successful IPO with price range elevation during the course of the road show,” analyst Matthew Robison wrote in a note.

AppDynamics' Peers

AppDynamics, the products of which can be configured to run on both cloud (SaaS) and premise, competes with firms such as CA, Inc. CA,New Relic Inc NEWR,Splunk Inc SPLK, Hewlett Packard Enterprise Co HPE and Microsoft Corporation MSFT.

Based on nine months of data for the period ending October, annualized billings of AppDyanmics were at a run rate of over $315 million and grew nearly 44 percent year-over-year.

Looking Forward

Robison expects Cisco to retain the AppDynamics sales force and function as an overlay to address applications buyers. AppDynamics CEO David Wadhwani will continue leading the operation as a new software business unit.

In addition, the analyst noted that the purchase of AppDynamics does not rule out a dividend increase, but it “may sate the appetite for large domestic acquisitions until relief of cash repatriation taxes is a certainty.”

Shares of Cisco closed Tuesday’s trading at $30.60. Robison maintains his Hold rating on the stock, with a price target of $27.