An irreverent look at Wall Street
UBS The Vendors Battle It OutCitrix vs. VMware – With a strong history in application virtualization (XenApp) a central tenet of the Citrix XenDesktop marketing pitch is that Citrix “knows the desktop”. Because the majority of enterprises use XenApp CTXS has been able to transition a portion of its XenApp installed base to XenDesktop which includes XenApp in high-end SKUs. However the best brand in virtualization is VMware, and many CIOs view VMware as their strategic virtualization vendor which will often benefit VMware View in bakeoffs.Best technology doesn’t always win – While many potential customers will do a proper evaluation of the solutions and choose the best solution for their environment, its not the best technology that always wins. For many customers it will come to which company has the more aggressive salesforce, which team internally between the datacenter team (typically pro-VMware) or the desktopUBS 2U.S. Software 8 October 2010team (typically pro-Citrix) wins the internal politics (Brian believes this should be a decision for the desktop team), or which company the CIO views as the more strategic vendor. Brian points out that a lot of customers use both Citrix and VMware in their IT infrastructure, but because of the success VMware has had in the datacenter with server virtualization VMware will be viewed as the strategic virtualization vendor whereas Citrix is often seen as more of a tactical point solution vendor.Thoughts on Recent Product ReleasesVMware View 4.5 – VMware recently released View 4.5 which has some nice advancements in management tools but Brian doesn't believe it’s an earth- shattering release nor does he expect it to open the floodgates to customers that had been waiting on the sidelines for the technology to mature.XenClient – Citrix has an advantage versus VMware with its client hypervisor, XenClient, because it opens up the mobile market to virtualization. VMware does not have a client hypervisor solution. However he points out XenClient is a 1.0 product with a very narrow hardware compatibility list and an incomplete feature set so he expects slow adoption.
UBS 9/9 Scarcity Value, Datapoints, M&A; PT to $67␣ Stock Momentum Credited to 3 Factors 1) Scarcity value of stocks exposed to cloud-computing, the most disruptive trend in software, 2) positive desktop virtualization datapoints, and 3) industry M&A putting a bid in well-positioned mid-cap software stocks. We expect these trends to continue and therefore we are raising our PT to $67, but our Neutral rating reflects the stock trading near 5-yr highs on an earnings/revenue/cash flow basis.␣ Deflationary Costs Promises to Speed Desktop Virtualization Adoption There was considerable desktop virtualization buzz at VMworld last week and in particular storage advancements in View 4.5 that meaningfully lowers the hardware acquisition cost per user. This is critical as a primary reason why desktop virtualization has failed to gain mass adoption is due to the significant upfront costs in areas like storage. Architecture advancements that lower the entry cost of desktop virtualization will help speed the adoption pace which should benefit CTXS given it offers the industry’s most robust solution.␣ Software M&A Heats Up; CTXS A Strong Asset; CSCO Most Likely CSCO would lessen its reliance on virtualization partnerships, find CTXS’s Online assets complimentary to its higher-end collaboration tools, and bolster its position in application delivery controllers. With a potential CSCO bid we would expect a MSFT counter to be likely.␣ Valuation Trades near 5-year valuation highs at 28x FY11e EPS, 5.0x EV/revs, 20x FY11e FCF. PT to $67 (from $52) equals 22x FY11e FCF/sh $3.04. Our new 22x target multiple (previously 17x) is inline w/ its multiple on FY10e FCF/sh, and is a 1.4x PEG on FY09-12e FCF/sh.
Thanks for that good research. I just thought that the sales ladies at CTXS were just hotter and the stock looked like a good entry point!!
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