A Clear and Cloudy View on Citrix
Keith is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Citrix Systems (NASDAQ: CTXS) keeps on confounding its critics. The company reported Q1 results in April that beat expectations. Revenue was up 20% year over year. Although GAAP net income was down slightly compared to the same quarter last year, adjusted earnings per share were up by 18% versus last year. What is more impressive than Citrix Systems’ quarterly numbers is its vision for the future and ability to execute on that vision. The company is a leader in three high growth areas: virtualization, online collaboration and cloud computing. Let’s look at how Citrix is forging ahead in these areas.
Citrix fields several products in the virtualization market including XenApp, XenDesktop and VDI-in-a-Box. XenApp is the company’s flagship product but Citrix is actively courting customers to move to the newer and more advanced XenDesktop. VDI-in-a-Box is positioned to attract small and mid-sized IT shops by offering a simple desktop virtualization deployment.
Gartner includes three companies as virtualization leaders and visionaries in its Magic Quadrant analysis: Citrix, Microsoft (NASDAQ: MSFT) and VMWare (NYSE: VMW). While VMWare continues to command the highest market share, Citrix has made inroads and grew its market share over the past two years.
Citrix is executing well in the virtualization space. The acquisition of AppDNA gives the company a product that customers can use to manage migration of applications to different environments, particularly from one version of Windows to another. This could allow Citrix to compete more effectively against VMWare, assuming organizations don’t abandon Windows in favor of pure software as a service (SaaS) solutions.
Speaking of Windows, the relationship between Citrix and Microsoft is an interesting one. The companies are both partners and competitors. XenApp runs on top of Microsoft’s Terminal Services. However, Microsoft has steadily improved its Terminal Services capabilities and released other products that position it as a formidable competitor in the virtualization market.
Citrix isn’t lying still, though. It continues to improve its products and give ample reasons for its loyal customer base to stay on board. Citrix also has extensive partnerships with major players including Dell, IBM and HP that help expand its marketing reach.
A tremendous growth area for Citrix is in online collaboration and support using SaaS. The company’s products include GoToMeeting, GoToWebinar, GoToTraining and GoToAssist. Revenues from this product line were up 21% in Q1 compared to last year and account for around 20% of total revenues.
The main competitors in this space are Cisco (NASDAQ: CSCO) and Microsoft. Cisco’s WebEx product dominates with a 58% market share compared to a 13% market share for Citrix and 11% for Microsoft. While it isn’t likely that Citrix will leap to number one in the near future, the company has been active in building its share of the online collaboration and support market.
Citrix purchased Netviewer, a vendor of SaaS collaboration and IT services, in 2011 to expand its presence in Europe. Later in 2011 Citrix scooped up ShareFile, a provider of data sharing services. In April 2012, Citrix acquired Podio. Podio provides a cloud-based social work platform that allows teams to work together in a virtual collaborative environment. All three acquisitions fit nicely with Citrix Systems’ strategy to grow its online collaboration business.
Another related area for growth is in virtual conferencing. Citrix already offers HD Faces free with GoToMeeting subscriptions. HD Faces supports high-definition video conferencing. Look for Citrix to build upon HD Faces going forward.
Perhaps the biggest blue ocean for Citrix is in cloud computing. Predictions are that the cloud computing market could grow over 50% from 2012 to 2015. Citrix sells its NetScaler line of products that accelerates network performance across the cloud. NetScaler was a primary driver in an 18.7% Q1 revenue increase for Citrix products and licenses.
The competition in Infrastructure-as-a-Service (IaaS) clouds is fierce. Familiar Citrix rival VMWare is a major player. Amazon, IBM, Rackspace, and Red Hat among many others that compete in the space also. Citrix is coming on strong, though. Two significant developments for Citrix are the acquisition of Cloud.com in 2011 and its efforts in the open source cloud initiatives.
Citrix quickly integrated the CloudStack product from Cloud.com to become one of the leaders in helping companies build on-premise private clouds. CloudStack complements the Citrix XenServer product in enabling customers to virtualize their datacenters and build private clouds. The company stunned some observers recently by announcing that it would turn CloudStack over to the Apache Software Foundation as open source. If CloudStack ultimately prevails in the IaaS platform wars, Citrix could be a big winner in this market.
Clear and Cloudy
The vision of Citrix is clear. The company wants to be the premiere strategic technology provider in transforming how people, business and IT work and collaborate. Citrix is leveraging its current technology and making the right acquisitions to fulfill this vision.
Citrix’s share price clouds the picture a little, however. The stock trades at a trailing P/E of over 44 and a forward P/E of over 25 with an expected 5-year PEG ratio of 1.78. Citrix appears to be valued at a premium. Because of this valuation, the consensus analyst opinion for Citrix is neutral.
On the other hand, Citrix compares fairly well against its main competitor VMWare. VMWare has a forward P/E of 33.52 and PEG of 1.64. Also, Citrix’s P/E range over the past 5 years has trended from lows in the upper teens to highs in the upper 40s. If Citrix share prices drop a little closer to the low end of its P/E range in an overall market pullback, investors should think about buying.
Keith Speights (www.keithspeights.com) has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services recommend Microsoft and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.