Citrix Uses Cloud to Emerge From Microsoft Shadow

Includes: CTXS, MSFT, RHT, VMW
by: Dana Blankenhorn

Because its main business was the creation of thin client Windows systems, and because of its long standing alliance with the Vole , Citrix Systems (NASDAQ:CTXS) has long been considered a stalking horse for the larger company, with rumors of its sale to Microsoft coming along regularly.

But its cloud software strategy, accomplished through acquisitions like this week's buy of, may finally be bringing the company out of Microsoft's (NASDAQ:MSFT) shadow and into the light.

Over the last year Citrix shares have gained a fat 70% in value, which Microsoft is up just 9%. Citrix' market cap is now $14.3 billion, and it's accorded an eye-popping P/E of 48.

Ironically, Citrix emerged 20 years ago mainly from shards of IBM's OS/2, which had lost the “great operating system game” to Microsoft. Its first successful product, a terminal server called WinView, allowed it to go public in late 1995, and that currency let it keep growing through acquisitions.

Citrix' most important capture may have been XenSource, whose server based on the open source Xen Hypervisor made it an important cloud player when that boom began soon after the deal was done in October, 2007. Many analysts now place Citrix right alongside VMWare (NYSE:VMW) as a cloud software leader.

Cloud.Com's CloudStack delivers an open source cloud platform, allowing each large enterprise to have its own cloud. Rather than seeing cloud as something separate from enterprise computing or as a replacement for it, this makes clouds just an evolution of enterprise systems, which is how most analysts see it moving.

Citrix has always been about strategy, about getting itself into the slipstream of the latest trend, of using its stock as currency to stay in the game. So while the current price of the stock may be based on clouds, the case for buying it is based on your faith in its underlying acquisition strategy.

Clouds are important but can they justify the multiples cloud companies like VMWare, Citrix and Red Hat (NYSE:RHT) are drawing? I don't think so. But when this dance ends and the next one starts, Citrix' track record tells me they'll be in it. That's why, at the right price, it's a good investment.

And when the game ends, maybe Microsoft will buy it after all.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.