Despite beating both internal and analyst consensus estimates following its fiscal 2015 Q3 earnings announcement, Cisco's (NASDAQ:CSCO) stock hasn't gained any momentum. Though shareholders have enjoyed a decent last 12 months, back-to-back earnings wins haven't resulted in the stock price pop some might have expected.

Cisco's ho-hum share price, along with its nearly 3% dividend yield, makes for a good long-term investment opportunity. However, as is the case with any company, there are challenges ahead worth monitoring. That's particularly true of Cisco as it continues its transformation to an Internet of Things (IoT) -- or the Internet of Everything (IoE) as outgoing CEO John Chambers coined it -- the cloud, and data center solutions.

A quick recap
Cisco analysts were predicting a 4.5% jump in revenues in Q3, along with non-GAAP (excluding one-time items) earnings per share (EPS) of $0.53. Though Cisco didn't blow the estimates away, it did beat on both its top and bottom lines.

Fiscal 2015 Q3 sales were $12.1 billion, a 5.1% improvement over the prior year, and non-GAAP EPS jumped nearly 6% to $0.54, compared to 2014's $0.51 a share. In large part, Chambers' focus on managing expenses and improving efficiencies -- a point of emphasis for the past eight months now -- were behind Cisco's strong quarter.

Data center revenues, a strategic area of focus during Cisco's business transition, helped drive its sales growth, despite larger-than-expected declines in its service unit -- it dropped 7% rather than the expected 4%. Data centers certainly provide Cisco with a fantastic opportunity as the world shifts to the cloud; however, they also present a very real challenge.

The world according to data centers
With the shift to the cloud and IoE, the market for data centers is expected to explode in the coming years. According to IDC, by next year, over 50% of "raw compute capacity" and 70% of the world's "raw storage capacity" will be housed in data centers. The good news for Cisco is that its run rate of over $3 billion in annual data center revenue positions it as a leader.

With so much potential, it's not surprising Cisco faces some stiff competition to claim the data center throne. Coincidentally, one of Cisco's biggest data center threats -- Arista (NYSE:ANET) -- is the target of a recent lawsuit alleging it infringed on Cisco patents. As per data from Gartner, Arista is "by far" the fastest growing data center solutions provider around.

Dell, Hewlett-Packard and a host of other big-name providers are also gunning for data center market share. Cisco's 21% jump in data center sales last quarter was impressive, but maintaining that level of growth will become more difficult with each passing quarter. Particularly with old nemesis Arista nipping at Cisco's heels.

Mediocre isn't good enough
The aforementioned improvement in data center sales, a 9% jump in cloud-managed mobile platform revenues, and a 14% hike in security revenues are all laudable. However, expected declines in Cisco's service-related sales and only modest growth in its core offerings will put a damper on revenue growth in the coming quarter.

According to Chambers, fiscal 2015's Q4 revenue forecast calls for a meager 1% to 3% increase. Granted, Cisco is transitioning its business just as its newest strategic cloud-services partner Microsoft is, and that takes time. The challenge is to make the transition not only successful -- which Cisco appears to be doing -- but also timely. Short-term investors are a notoriously fickle lot, and the longer it takes for Cisco to really hit its stride, the higher the chances for a near-term stock price hit.

One sale, multiple payments
Both Chambers and incoming CEO Chuck Robbins made a point of communicating Cisco's intention of bolstering its recurring revenue streams. Recurring revenue, in addition to adding to the top line, has the added benefit of limiting the cost of sales. Once a recurring sale is done, the expenses associated with future revenues are mitigated.

To Cisco's credit, recurring revenue from its collaboration and security units jumped 20% last quarter. Can it continue to build on this key driver of future growth? That's the question investors are likely to ask going forward, and Cisco will need to answer in the affirmative to maintain its current stock price, let alone provide shareholders with some appreciation.