An Analysis of 3 Major Firms Providing Cloud Based Services
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I am going to take a look at some of the country's leading cloud computing providers. By "leading," each of the large companies is on techtarget.com's list of the Top 10 Cloud Computing Companies of 2012. My own interest in cloud based technology has to do with ever less expensive laptops sold by the likes of Google (GOOG), which utilize cloud based applications instead of traditional computer hardware memory. In addition, cloud applications and storage are an answer to enterprise concerns with limited capital budgets.
Citrix Systems (NASDAQ: CTXS) produces and markets its enterprise infrastructure access software to large businesses, educational institutions and governments. As such, it suffered, and has continued to suffer as government and educational institutions in particular have slashed budgets. I do not expect its 2012 earnings to exceed the level in 2011, and this is due to narrowing profit margins as revenues have been advancing sharply. It seems in the current climate that enterprise clients are balking at the price of renewal maintenance and consulting contracts. Such contracts have been accounting for nearly half of Citrix's recent revenues.
The top line for Citrix has not been a problem, as revenue thus far this year has trended about 15% ahead of this period last year. But expenses, and in particular, goodwill write-offs, have risen faster than revenues have advanced. But as long as revenue keeps advancing, that condition will not last forever, and for that reason, along with a recovering economy in at least parts of the world in 2013, I expect Citrix's bottom line to advance 10% from this year's level in 2013. Aiding the company's cause is a balance sheet devoid of long-term debt. Citrix is trading with a PEG of 1.33, and has trended down in price over the past few months. Today's price point, at or below $60 per share, makes for an attractive long-term holding.
VMware (NYSE: VMW) is known as a virtualization company, whose software allows users to aggregate multiple servers or workstations together into shared pools of capacity. More recently, it has focused ever more attention on cloud based applications. Specifically, VMware offers its vCloud Director for the development of "private" clouds that appeal to larger businesses. VMware is also the founder and driving force of the open CloudFoundary.
VMware had a typically strong third quarter in revenues, as it was up 20% from the same quarter of 2012 to $1.13 billion. Adjusted earnings came to $303 million, or $0.70 per share, compared with $230 million, or $0.53 per share a year ago. GAAP earnings which included one-time tax issues and some goodwill write offs, came to $157 million, or $0.36 per share, a drop from the year ago's total of $178 million, or $0.41 per share. Analysts see earnings growth averaging 21% over the next five years. But now, VMware trades at price to earnings ratio over 50. This is a fine company in a growing industry, but it is simply too rich for tastes at its present level.
Terremark is now a wholly owned subsidiary of Verizon (NYSE: VZ), through a $1.4 billion acquisition in January, 2011. Verizon is a leading communications company. It owns a leading landline franchise, in addition to its 55% stake in Verizon Wireless.
In its third quarter, Verizon reported its third consecutive quarter of double digit earnings growth compared with corresponding periods of 2011. Specifically, on a four percent advance in revenues, Verizon reported profits of $1.59 billion, or $0.56 per share. But after taking out one time charges, adjusted earnings came to $0.64 per share. Growth continued to be provided by the cell phone unit, where all numbers were strongly up, especially when compared with the year ago quarter that contained a two week employee strike.
A blend of the growth of cellular service unit with the stability and cash flow of the landline unit, along with a well-covered, 4.7% dividend yield, make Verizon among the very best choices for conservative, income seeking investors.
Of course, one does not need to do business with multinational behemoths in order to have a cloud presence. Small, privately held companies are propping up everywhere. One such domestic company, Younicycle, allows levels of flexibility and customization that larger competitors have a hard time matching. Its website explains with clarity the users' options of service levels and price points. If your business has a need for platform as a service, I urge you do "dip your toe in the water" with a company such as Younicycle.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of VMware. Motley Fool newsletter services recommend 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!