Citrix Systems, Inc. (CTXS), Cisco Systems, Inc. (CSCO), Microsoft Corporation (MSFT): How This IT Stock Is Managing Changing Computing Trends

Desktop virtualization and application delivery controllers
Alongside the plan to push XenMobile — which, by the company’s own admission, is hurting its efforts to sell its stand-alone desktop solutions — Citrix is also releasing its latest desktop virtualization solution, XenDesktop 7. Microsoft Corporation (NASDAQ:MSFT) has a vested interest in helping this solution succeed because it brings Windows virtual desktop and apps under one structure, encouraging corporations to keep running Windows.

While XenMobile and the XenDesktop 7 are about generating future growth in mobile and desktop, the current star performer is Citrix’s networking and cloud division. The latter grew revenue at a whopping 46% in the quarter, with product license revenues up 54%. In fact, the share of total revenues coming from networking and cloud solutions has risen from 16% in 2010 to around 22% so far this year.

Source: company accounts

The biggest contributor to growth in networking and cloud revenue came from Citrix’s application delivery controller, or ADC, NetScaler. F5 Networks (NASDAQ:FFIV)  is the global leader in this market, but Citrix’s NetScaler has a couple of key advantages.

First, Citrix Systems, Inc. (NASDAQ:CTXS) is able to include NetScaler as part of its virtualization offerings. Indeed, it announced that it signed 550 desktop virtualization orders in the quarter on this basis. Second, Cisco Systems, Inc. (NASDAQ:CSCOis a key partner of Citrix, and since Cisco stopped investing in its own ADC (called ACE), the two companies have teamed up to sell NetScalers.

There is more growth to come. On the conference call, management argued that the replacement orders for Cisco’s ACE only contributed a “minor amount” to the current results. In other words, Citrix still has a significant amount of Cisco Systems, Inc. (NASDAQ:CSCO)’s installed base of ACE customers to target in the future. Naturally, F5 will also fight hard for this business, but it’s difficult to conclude that Citrix isn’t taking market share at the moment.

The bottom line

Essentially, Citrix investors should be looking for a few things going forward:

  • A strong return to mobile & desktop product license growth in the second half
  • Ongoing sales execution from NetScaler
  • Its partners, Cisco Systems, Inc. (NASDAQ:CSCO) and Microsoft Corporation (NASDAQ:MSFT), continuing to integrate functionality with Citrix’s solutions

The desktop virtualization market is far from dead, and still has some good growth catalysts. In addition, the changing tides in IT spending are about integrating solutions across multi-platforms, so Windows still has a key role to play. Meanwhile, XenMobile and NetScaler promise to offer alternative sources of growth.

Finally, Citrix’s valuation does not look historically expensive.

CTXS Price to Cash Flow TTM data by YCharts

Provided it can execute on the above points, the analysts’ consensus price target of $80 looks achievable. It’s well worth a look.

The article How This IT Stock Is Managing Changing Computing Trends originally appeared on Fool.com.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, F5 Networks, and Intel. The Motley Fool owns shares of F5 Networks, Intel, and Microsoft. 

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