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Citrix: Looking For Growth In All The Wrong Places


if '07 CFO comes in around current estimates of about $2.00/sh., this is a pretty cheap stock for a company in a potentially very hot space

When Citrix Systems (CTXS) reported its Q3 numbers the stock got pasted. The sell side was obviously disappointed with the slowing growth in CTXS' core remote access business, now known as Presentation Server (PS). PS is the principal revenue generator for CTXS, and in some respect the company is still identified with that particular product line. There is no question then that CTXS cannot afford to slack off around it. But IMHO, focusing on PS at the expense of the other two business segments, - the GoTo remote access / collaboration services, and, most importantly, the Web Acceleration products (NetScaler) - misses the forest for the trees.
I've long argued that "logistics management", be it for real goods and services (the GPS theme) or data packets, is one of the few remaining growth frontiers. With the explosion of digital content and the seemingly unstoppable shift toward web-based computing, controlling the flow and the speed of delivery within the broad internet network, in an enterprise environment, or near the end user, will be the difference between success and failure. It's no coincidence that companies like Akamai (AKAM) (content distribution management at the edge), and F5 Networks (FFIV) and Cisco (CSCO) (core network management) have seen a mini-boom.
CTXS NetScaler and GoTo products are attempting to penetrate precisely those areas and are having a fair amount of success. NetScaler has already given FFIV heartburn within the core internet network space, and now looks ready to attack the enterprise network, where it seems on a direct collision course with AKAM's new web acceleration product.

Competition notwithstanding, the market for NetScaler type products is large and growing and CTXS' growth opportunity is in its infancy, and will likely come at the expense of its competitors rather than vice-versa.
A different yet similar story is unfolding around the GoTo products. These are web based tools that allow remote access to one's PC, Web Meetings, Webinars, etc. This kind of stuff has been around for a while, but with frustratingly bad glitches (have you ever had the toe-nail ripping delight of sitting through a WebEx (WEBX) session?). CTXS may simply have reinvented the wheel here, but this wheel works. And the growth in revenues from these services (triple digits kind of stuff) pretty much proves it. Don't get me wrong, ultimately better mouse traps will give the GoTo family a run for the money, but between now and then there can be some pretty decent profits to be made.
So what's in store for CTXS stock? Here is a snapshot of 4Q expectations:
My sense is that if PS license revenues are anywhere near decent (and the bar has been set pretty low there), any upside from GoTo and/or NetScaler revenues is likely to be very well received ($5-10 upside?). On the downside, should the report come in weakish, the existing balance sheet and cash flow should provide enough of a cushion to keep the stock in the high to mid $20's. CTXS has $5 of net cash on the balance sheet, and generated $1.70 in Cash From Operations (CF)) for the last 12 months. It has minimal CapEx costs, and the use of cash has historically been for strategic (i.e. technology) acquisitions and share buybacks. That means that if '07 CFO comes in around current estimates of about $2.00/sh., this is a pretty cheap stock for a company in a potentially very hot space.
The company reports on January 23. We shall see.
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