Morningstar | CTXS Updated Forecasts and Estimates from 26 Apr 2019
Citrix reported first-quarter earnings a little below our expectations because the company's subscription revenue became a greater part of the revenue mix than expected. We’re not particularly worried about the mix acceleration because it pushes the company closer to realizing unbilled revenue through its lengthy switch to a subscription revenue model. While competition in the software-as-a-service (SaaS) security segment continues to be a concern because the company expands its secure networking options outside of virtualization, we see few negative effects currently. We are maintaining our $88 fair value estimate for this narrow-moat brand and, with Citrix showing little movement in after-hours trading. We believe the stock of this high uncertainty company is fairly valued.In the first quarter, revenue rose 3% year over year to $719 million, propelled by subscription revenue growth, which increased 37% year over year. Highlights included SaaS revenue’s 43% year over year increase, which constituted 60% of subscription revenue and Workspace Services rose 13%, the highest amount since 2012 (aided significantly by adoption of Citrix Cloud). Deferred and unbilled revenue increased 21% year over year to $2.14 billion.
Citrix reported an adjusted operating margin of 28% for the quarter, lower than the 32% in 2018, reflecting Citrix’s increasing subscription revenue mix. We expect pressure on its margins to continue.
Citrix currently does not have any Desktop-as-a-Service (DaaS) offerings, but it announced plans to build a DaaS solution for Windows Virtual Desktop. We are encouraged that Citrix continues to develop new partnerships with Microsoft. We think that maintaining this relationship will be crucial to fighting competition from cloud service providers, which could prove even more difficult if customers lose trust in the Citrix name. Citrix said it has not found evidence of intercepted data during a Citrix cyberattack reported in March. If findings do eventually show Citrix data was vulnerable, we think this could further erode the company’s switching costs.
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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