Citrix rides desktop virtualization wave as growth picks up

Citrix reported stellar first quarter results and noted that desktop virtualization has become one of its fastest growing categories.

The company's first quarter was described as a "jailbreak" by a few analysts because all of Citrix's products took off. The company reported first quarter earnings of $68 million, or 36 cents a share, on revenue of $589 million, up 20 percent from a year ago. Non-GAAP earnings were 59 cents a share. Wall Street was expecting earnings of 51 cents a share on revenue of $562 million.

Deferred revenue surged to $983 million in the first quarter, up from $789 million a year ago. Citrix said its software as a service revenue was up 21 percent and product and license sales grew 19 percent.

And for the second quarter, Citrix projected revenue between $605 million to $615 million with non-GAAP earnings of 58 cents a share to 59 cents a share.

What's driving Citrix's results? The enterprise is on the desktop virtualization bandwagon. CFO David Henshall noted that Citrix's desktop solutions business revenue jumped 17 percent to $338 million. In the first quarter, Citrix signed 19 deals valued at more than $1 million. "We transacted with over 3,000 different customers, including 110 deals for more than 1000 seats at Desktop, and 26 deals of more than 5,000 seats, which is an increase of over 50% year-on-year," said Henshall.

Citrix's data center and cloud business delivered revenue of $100 million, up 28 percent from a year ago. NetScaler was a top performing product. CloudStack has 100 customers in production deployments.

JMP Securities analyst Patrick Walravens said CloudStack, now contributed Apache, is notable. Walravens said:

We understand why Citrix is seeking to drive its own open source cloud operating system as vendors that help influence the roadmap for a successful open source cloud operating system have the potential to drive significant ancillary revenue streams. We think Rackspace is also very well positioned to benefit from this build out as it founded OpenStack and offers cloud service agreements supporting OpenStack. While VMware dominates enterprise virtualization and the market for private clouds, we find that it is on the defensive for the public cloud build out. IBM and HP for example are both building pubic clouds that leverage OpenStack.

Mark Templeton, CEO of Citrix, said that new releases from Microsoft will further drive desktop virtualization revenue. Templeton said:

We're taking desktop virtualization to a new level, with our upcoming Synergy announcements and in partnership with Microsoft, as they introduce new versions of Windows Server, System Center and Azure, along with Windows 8 desktops and tablets.

Analysts were upbeat about Citrix. Morgan Stanley analyst Adam Holt said Citrix billings growth is "outpacing VMware for the first time."