Splunk: $27.1 Billion for a Software BusinessThin moat

Cisco Systems (CSCO) — moat facet

Cisco paid $27.1 billion for Splunk, 71% of it goodwill, and the software business it bought grew 2% to 4% in its first full year.

Cisco's attempt to become a software company rests mainly on one purchase. On 18 March 2024 it completed the acquisition of Splunk for total consideration of about $27 billion1: $27,090 million, almost all of it cash for stock at $157 a share2.

The Splunk purchase ($M)27,090Total consideration19,301Goodwill10,550Purchased intangibles3,344Convertiblenotes assumedCisco Form 10-K FY2024
Most of the price was goodwill.

Most of the price was goodwill. Cisco recorded $19,301 million of goodwill and $10,550 million of purchased intangibles, and assumed $3,344 million of Splunk convertible notes3. Goodwill was about 71% of the consideration4. In its first partial year Splunk contributed a net loss of $557 million5.

The deal did what it was meant to do to the reported numbers. Security revenue rose 59% in fiscal 2025, an increase of $3.0 billion6, and software revenue grew 21% to $22.3 billion7.

What it did not do is grow once it was inside. In fiscal 2026 Security rose 2% and software revenue 4%8, and Cisco reported a decline in its observability suite9.

The goodwill test protects the price paid from scrutiny. Cisco's reporting units are its geographic segments10, and it says a hypothetical 10% decline in the fair value of each "would not result in an impairment"11. Splunk's value will never be tested on its own.

The purchase bought a large book of software revenue at a full price. The figure that would justify it is software revenue growth; a return to high single digits in fiscal 2027 would show Splunk growing inside Cisco, while another year near 4% would mean Cisco bought a mature business at a growth price.

Moat trajectory: Narrowing

Security +2% and software +4% in FY2026.

The number that tests this moat
Moat Explorer calc
Goodwill share of total assets
About 46% (end FY2026, $59,477M)

The price of acquisitions still on the books; an impairment would confirm the buyer overpaid.

How it's calculated: Goodwill of $59,477M divided by total assets of $129,637M at 25 July 2026, from Cisco's FY2026 10-K.
Source: Moat Explorer calculation from Cisco filings ↗
⚠ Threats to the moat
⚠ THREAT 01
Goodwill Is 46% of the Balance Sheet
Goodwill is 46% of Cisco's assets, and because it is tested by region, a disappointing Splunk would not show as an impairment.
References
  1. ReportedOn 18 March 2024 it completed the acquisition of Splunk for total consideration of about $27 billion: $27,090 million, almost all of it cash for stock at $157 a share.
    Cisco Systems Form 10-K for fiscal 2024 - the new product categories with fiscal 2022-2023 restated, segment revenue and margins, and the Splunk acquisition. — FY2024 · publ. September 2024 · source ↗
  2. ReportedOn 18 March 2024 it completed the acquisition of Splunk for total consideration of about $27 billion: $27,090 million, almost all of it cash for stock at $157 a share.
    Cisco Systems Form 10-K for fiscal 2024 - the new product categories with fiscal 2022-2023 restated, segment revenue and margins, and the Splunk acquisition. — FY2024 · publ. September 2024 · source ↗
  3. ReportedCisco recorded $19,301 million of goodwill and $10,550 million of purchased intangibles, and assumed $3,344 million of Splunk convertible notes.
    Cisco Systems Form 10-K for fiscal 2024 - the new product categories with fiscal 2022-2023 restated, segment revenue and margins, and the Splunk acquisition. — FY2024 · publ. September 2024 · source ↗
  4. Moat Explorer calcGoodwill was about 71% of the consideration.
    Moat Explorer calculation from Cisco's reported revenue, margins and financial statements ($ millions unless stated). Revenue growth FY2026 63,325 / 56,654 - 1 = 11.8%; increase 63,325 - 56,654 = 6,671. Networking share 34,668 / 63,325 = 54.7%; of product revenue 34,668 / 48,295 = 71.8%; networking increase 34,668 - 28,304 = 6,364, 6,364 / 6,671 = 95.4% of the revenue increase. Networking against FY2023 34,668 / 34,570 - 1 = 0.3%; FY2024 29,229 / 34,570 - 1 = -15.4% (a fall of 5,341); FY2025 28,304 / 29,229 - 1 = -3.2% (a fall of 925); FY2023 34,570 - 29,265 = +5,305. Other lines FY2026 changes: security 8,232 - 8,094 = +138 (+1.7%); collaboration 4,300 - 4,154 = +146 (+3.5%); observability 1,095 - 1,055 = +40 (+3.8%); services 15,030 - 15,046 = -16 (-0.1%). Product revenue 48,295 / 41,608 - 1 = 16.1%. Shares of FY2026 revenue: services 15,030 / 63,325 = 23.7%; security 8,232 / 63,325 = 13.0%; collaboration 4,300 / 63,325 = 6.8%; observability 1,095 / 63,325 = 1.7%. Observability shares: 581 / 51,557 = 1.1% (FY2022); 661 / 56,998 = 1.2%; 837 / 53,803 = 1.6%; 1,055 / 56,654 = 1.9%. Observability growth 661 / 581 - 1 = 13.8%; 837 / 661 - 1 = 26.6%; 1,055 / 837 - 1 = 26.0%; 1,095 / 1,055 - 1 = 3.8%; 1,095 / 581 = 1.88 times. Services growth 13,856 / 13,539 - 1 = 2.3% (FY2023); 14,550 / 13,856 - 1 = 5.0%; 15,046 / 14,550 - 1 = 3.4%; FY2016 to FY2026 15,030 / 11,993 - 1 = 25.3%. Services gross profit 10,346 / 40,860 = 25.3% of gross margin. Subscription services 13,663 / 15,030 = 90.9% of services. Non-subscription product 48,295 - 18,314 = 29,981; non-subscription services 15,030 - 13,663 = 1,367. Subscription share 31,977 / 63,325 = 50.5% (FY2026); 31,526 / 56,654 = 55.6% (FY2025); 27,380 / 53,803 = 50.9% (FY2024); subscription growth 31,977 / 31,526 - 1 = 1.4%. Security: 3,382 / 1,969 - 1 = 71.8% (FY2016 to FY2021, older basis); 8,094 / 3,859 = 2.1 times (FY2023 to FY2025); 8,232 / 3,699 = 2.2 times (FY2022 to FY2026). Collaboration 4,300 / 4,823 - 1 = -10.8% against FY2020. Segments: Americas revenue 37,799 / 33,656 - 1 = 12.3%; Americas gross margin 68.2% - 65.1% = 3.1 points (310 basis points); EMEA 16,613 / 14,824 - 1 = 12.1%; APJC 8,914 / 8,174 - 1 = 9.1%. United States revenue 34.4 / 63.3 = 54.3%; outside the United States 63.3 - 34.4 = 28.9 bn; United States growth 34.4 / 30.4 - 1 = 13.2%. AI and orders: Q3 FY2026 hyperscaler orders 5.3 - 1.3 - 2.1 = 1.9 bn; Acacia about 1,000 / 9,791 networking = 10.2%; FY2027 revenue guidance midpoint (72.2 + 73.4) / 2 = 72.8 bn, 72.8 / 63.325 - 1 = 15.0%; AI revenue target 7.5 / 72.8 = 10.3%; price increases 4.5 points / 15 = about a third; Q1 FY2027 gross margin guidance midpoint (65 + 66) / 2 = 65.5%; Q1 FY2027 operating margin guidance midpoint (35.5 + 36.5) / 2 = 36.0%. Security plus observability Q4 FY2026 2,226 + 275 = 2,501. Backlog: remaining performance obligations 46,734 / 63,325 = 73.8% of revenue; short-term 22,776 / 21,723 - 1 = 4.8%; long-term 23,958 / 21,810 - 1 = 9.8%. Purchase commitments 17,165 / 7,599 - 1 = 125.9%; 17,165 / 63,325 = 27.1% of revenue. Inventory 5,694 / 3,164 - 1 = 80.0%. Competitors named in the FY2026 10-K: 18 (Amazon Web Services, Arista, Broadcom, Ciena, CrowdStrike, Datadog, Dell, Dynatrace, Fortinet, Hewlett Packard Enterprise, Huawei, Microsoft, Nokia, Nvidia, Palo Alto Networks, RingCentral, Zoom, Zscaler). Balance sheet, cash flow and market data: Net income 13,267 / 10,180 - 1 = 30.3%; free cash flow 12,767 / 13,288 - 1 = -3.9%; capital spending 1,410 / 905 - 1 = 55.8%; capital spending 1,410 / 63,325 = 2.2% of revenue; free cash flow margin 12,767 / 63,325 = 20.2%; returned 12,659 / 12,767 = 99.2% of free cash flow. Dividends / free cash flow: 6,384 / 10,210 = 62.5% (FY2024); 6,437 / 13,288 = 48.4% (FY2025); 6,553 / 12,767 = 51.3% (FY2026). Dividends per share 1.66 / 0.72 = 2.3 times (FY2014 to FY2026). Buybacks: 117 - 76 = 41 million fewer shares than FY2024; average price 80.26 / 49.45 - 1 = 62.3%; FY2018-FY2026 17,661 + 20,577 + 2,619 + 2,902 + 7,734 + 4,271 + 5,764 + 5,995 + 6,106 = 73,629. Diluted shares 3,987 / 5,146 - 1 = -22.5%. Net income 13,267 / 8,981 - 1 = 47.7%; diluted EPS 3.33 / 1.75 - 1 = 90.3% (FY2015 to FY2026). Net debt 29,533 - 15,918 (cash and investments, about 15.9 bn) = 13,615, about 13.6 bn. Net interest 1,365 - 1,006 = +359 (FY2024); 1,001 - 1,593 = -592 (FY2025); 866 - 1,470 = -604 (FY2026). Goodwill 59,477 / 129,637 = 45.9% of total assets; Splunk goodwill 19,301 / 27,090 = 71.2% of consideration. Employees 82,400 / 90,400 - 1 = -8.8%; R&D 9,563 - 9,300 = +263; sales and marketing 11,559 - 10,966 = +593; R&D 9,563 / 63,325 = 15.1% of revenue; restructuring 693 / 63,325 = 1.1% of revenue. FY2025 net income as released about 10,500 - 10,180 as filed = about 320 (about 0.3 bn); EPS 2.61 - 2.55 = 0.06. Free cash flow yield 12,767 / 421,740 = 3.0%. Price against the 52-week high 106.97 / 130.37 - 1 = -17.9%. P/E 421,740 / 13,267 = 31.8; P/S 421,740 / 63,325 = 6.66. Further: revenue FY2023 to FY2026 63,325 / 56,998 - 1 = 11.1%; HPE and Juniper Ethernet 1.15 / 5.43 = 21.2% of Cisco Ethernet; non-GAAP EPS 4.33 / 3.81 - 1 = 13.6%; FY2026 order forecast 9 / 5 - 1 = 80%; FY2025 AI orders 2.0 / 56.654 = 3.5% of revenue; FY2026 9.3 / 63.325 = 14.7%; product subscription 18,314 / 17,783 - 1 = 3.0%; FY2018 buyback 17,661 / 80.26 = 220 million shares; 76 / 3,946 = 1.9% of shares; revenue FY2024 to FY2026 63,325 / 53,803 - 1 = 17.7%; Arista 2.30 - 2.24 = 0.06 bn; R&D 9,300 / 7,983 - 1 = 16.5% and revenue 56,654 / 53,803 - 1 = 5.3% (FY2025); R&D 9,563 / 9,300 - 1 = 2.8% (FY2026); Q1 FY2027 guidance midpoint 18.1 / 14.883 - 1 = 21.6%; FY2028 consensus P/E 106.97 / 5.62 = 19.0; cash 15.9 / 6.553 = 2.4 years of dividends; services obligations 23,298 / 46,734 = 49.9% and 23,298 / 15,030 = 1.55 years; short-term debt 10,161 / 29,533 = 34.4%; authorisation 8.1 / 6.1 = 1.3 years; product-services margin spread 68.8 - 63.2 = 5.6 points; FY2024 returns (6,384 + 5,764) / 10,210 = 119%; diluted shares 4,254 / 4,881 - 1 = -12.8% (FY2018 to FY2020); buybacks FY2018 and FY2019 17,661 + 20,577 = 38,238; AI revenue 7.5 / 3.8 = 1.97 times; FY2027 GAAP EPS guidance midpoint (4.00 + 4.06) / 2 = 4.03, 4.03 / 3.33 - 1 = 21.0%; G&A 2,761 / 2,992 - 1 = -7.7%; Q4 security 2,226 / 8,232 = 27.0% of the year - revenue-line totals, growth and orders. — FY2015-FY2027 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in Cisco's Forms 10-K, quarterly results releases, the Q4 FY2026 call and market data; operands shown in the source line.
  5. ReportedIn its first partial year Splunk contributed a net loss of $557 million.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - financial statements and notes: balance sheet, cash flow, commitments, customers and acquisitions. — FY2026 · publ. 2 September 2026 · source ↗
  6. ReportedSecurity revenue rose 59% in fiscal 2025, an increase of $3.0 billion, and software revenue grew 21% to $22.3 billion.
    Cisco Systems Form 10-K for fiscal 2025 - the supplier settlement of 26 August 2025, Security growth of 59% and fiscal 2025 net income of $10,180 million. — FY2025 · publ. 3 September 2025 · source ↗
  7. ReportedSecurity revenue rose 59% in fiscal 2025, an increase of $3.0 billion, and software revenue grew 21% to $22.3 billion.
    Cisco Systems Form 10-K for fiscal 2025 - the supplier settlement of 26 August 2025, Security growth of 59% and fiscal 2025 net income of $10,180 million. — FY2025 · publ. 3 September 2025 · source ↗
  8. ReportedIn fiscal 2026 Security rose 2% and software revenue 4%, and Cisco reported a decline in its observability suite.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - Item 7 MD&A: revenue by product category and segment, and gross margins. — FY2026 · publ. 2 September 2026 · source ↗
  9. ReportedIn fiscal 2026 Security rose 2% and software revenue 4%, and Cisco reported a decline in its observability suite.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - Item 7 MD&A: revenue by product category and segment, and gross margins. — FY2026 · publ. 2 September 2026 · source ↗
  10. ReportedCisco's reporting units are its geographic segments, and it says a hypothetical 10% decline in the fair value of each "would not result in an impairment".
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - financial statements and notes: balance sheet, cash flow, commitments, customers and acquisitions. — FY2026 · publ. 2 September 2026 · source ↗
  11. ReportedCisco's reporting units are its geographic segments, and it says a hypothetical 10% decline in the fair value of each "would not result in an impairment".
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - financial statements and notes: balance sheet, cash flow, commitments, customers and acquisitions. — FY2026 · publ. 2 September 2026 · source ↗
Sources
Generated September 25, 2026