Citrix Systems (CTXS - Analyst Report) has a fantastic webinar platform that I find easy to use and it's great how the GoToMeeting software loads quickly to your desktop. Of course the company is also a leading provider of virtualization software and networking and cloud computing solutions to more than 230,000 organizations worldwide.
But the company's earning's profile and resultant stock performance over the past year is another matter altogether. And they gave us nothing to cheer about last week when they reported mixed financial results for the fourth quarter of 2013.
While net income surpassed the Zacks Consensus Estimate, total revenue missed the same. Following the results, management significantly slashed its earnings per share projection for the next quarter. Citrix shares gapped down 10% the next day not just to a new 52-week nadir, but to lows under $52 not seen since August of 2011.
Zacks Rank Warned Investors -- Last Week, and All Last Year
Wall Street analyst earnings estimate revisions the week before this quarterly report pushed CTXS back down to a #4 Rank (Sell) on January 25 warning investors 3 days before the event and giving them a chance to exit at $59.
In fact, since July of 2012, CTXS has held a Zacks #3 Rank (Hold) or worse, with many #4 (Sell) and #5 (Strong Sell) ratings. The proprietary Price & Consensus chart below tells the tale of a company in an earnings's decline that the stock followed from highs above $80 to today's pause at 2.5 year lows.
When you can't do enough research on a company or industry yourself, sometimes the Zacks Rank can tell you almost all you need to know. That's because it is a quantitative measure of a company's earnings momentum relative to the rest of the market.
What's Wrong With Citrix?
But sometimes you still want to understand what's driving a particular company or industry up, or down. Here, from the January 3 Zacks Research Analyst report, are some of the technology trends which might explain why Citrix analysts have been steadily downgrading the company's growth outlook for over a year...
Several industry researchers have predicted that of all the corporate desktop PCs, only a few will use virtualization in the future due to costs associated with this technology. As a result, the long-term growth of Citrix may face headwinds beyond 2013-2014.
The server virtualization market is intensely challenging and is becoming more commoditized. Citrix has been steadily cutting the prices of its XenServer product line and as a result, most of its offerings are currently free. The company witnessed a relatively slow conversion from free offering to paid-for-essential versions.
Citrix continue to face stiff competition from VMware. Acquisition of Desktone by VMware will allow the company to offer DaaS through its Cloud Hybrid Service. Moreover, Citrix's desktop platform faces stiff competition from VMware's View product and Oracle's broad virtualization stack.
Bottom line: The Zacks Rank will tell us when the earnings picture shows any signs of a turnaround at Citrix. Until then, proceed cautiously.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.