New Flip Cam Feature Great for Users, an Afterthought for Investors
The announcement of new apps by Cisco’s (NASDAQ:CSCO) Flip camera business is a handy addition to Flip camera users, but not that handy to the company’s value. Here we take a look at the impact of this development from a stock value perspective. Cisco competes with Juniper (NYSE:JNPR) and Alcatel-Lucent in the network equipment business.
Our price estimate for Cisco stands at $24.20, a premium of about 40% to market price.\
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A Brief Look at the New Feature
Cisco’s Flip camera business has announced enhanced social and video sharing features (called FlipShare Groups) in the latest version of its FlipShare software. This software provides a tool for users to share videos and photos capture via their flip cameras. The company will also offer FlipShare mobile apps for iOS and Android-based mobile smartphones and tablets.
As evident in the company’s recent statement, the initiative is intended to capitalize on the surging demand for social networking functionality in any and all new devices. Cisco recently explained:
“After creating a FlipShare Group, users and their friends can access their videos from FlipShare.com and through the FlipShare Mobile apps that are now available for iPhone, iPad and Android. Within FlipShare Groups users can comment, read and post messages on each other’s videos and groups.” [1]
Flip Cams – A Small Contribution to Cisco’s Stock Value
Cisco entered the Flip camera business through its acquisition of Pure Digital in 2009. We estimate that Linksys and the Flip camera together constitute just over 1% of Cisco’s stock value. Quite a small contribution, as Cisco generates a substantial majority of its profit by selling routers, switches and network services. Although the new apps and software add a level of attractiveness for shoppers looking to buy a new video camera, it hardly matters to Cisco stock.
Ultimately, the camera business might not be the best business for Cisco in the long run. Flip cameras derive their value from high quality recording and ease of use. However, these features are increasingly available in today’s smartphones. So why should consumers buy an alternate device?
If Cisco does want to stay in the camera business, it will need to continuously innovate both software and hardware. For example, connectivity to wireless networks on the go would enable quick and easy online sharing. Nevertheless, it remains to be seen whether Cisco can really hold its own in this space against established consumer goods companies that have a bit more experience managing and marketing these devices, as well as the impending threat of more advanced smartphones.
See our complete analysis of Cisco stock here
- Flip Video Announces New Version of FlipShare With Social Features and Mobile apps for iPhone, iPad and Android Devices, Yahoo Finance, Apr 4 2011 [↩]