Morningstar | Citrix Cloud Brings a Surprisingly Smooth Subscription Transition; Maintaining $88 FVE
Despite a year of transitioning to a subscription model and unpredictable networking spend, Citrix was able to beat our expectations on the top and bottom line. Workspace services drove revenue growth, as Citrix Cloud captured new customers driven by the growing needs implied in hybrid-cloud environments and the new market it creates. We are maintaining our $88 fair value estimate for this narrow moat name, as we are encouraged by Citrix’s ability to partner with cloud service providers for virtualized desktop solutions and tackle more promising trends in networking.In the fourth quarter, revenue rose 3% year over year to $802 million. For the full year, revenue increased 5% year over year to $2.97 billion. Growth over fiscal 2018 and the quarter was largely from Workspace, which increased by 6% year over year to $557 million for the quarter. Specifically, subscription revenue increased 45% year over year to $130 million. Networking was affected by cyclicality in the quarter, declining 4% to $206 million. Of note, the SSP networking subsegment (composed of hyperscale cloud providers) saw a bookings decline of 15%. Citrix expects SSPs to be a future headwind as cloud providers’ spending is estimated to be erratic. While this is concerning given Citrix’s history of relying on SSP revenues, SSP only accounted for 15% of networking bookings in the quarter. We believe the small but growing SD-WAN portion will help to cushion future blows from SSPs.
Adjusted operating margins for the quarter came in at 35%, lower than last year’s 40%. While management noted the difference stemmed from last year’s restructuring benefit, we believe this is also a sign of operating margin pressure as the subscription transition takes place. For the fiscal year, adjusted operating margins were 32%.
Revenue guidance for the first quarter of 2019 is $700 million-$710 million. Citrix expects Workspace’s Citrix Cloud momentum to be sustained and, again, the main propeller to growth. For fiscal year 2019 guidance, Citrix expects revenue between $3.08 billion and $3.09 billion. Adjusted operating margins for fiscal 2019 are expected to see pressure, falling between 31.5% and 32%.
Citrix Systems is an enterprise software company. The company markets and licenses its solutions through multiple channels worldwide, including selling through resellers, direct and over the Web. The company's partner community comprises thousands of value-added resellers known as Citrix Solution Advisors, value-added distributors, systems integrators, independent software vendors, original equipment manufacturers and Citrix Service Providers. The company provides solutions and services that it categorizes into three inter-related and complementary areas: Workspace, Networking and Professional Services.
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