Why Citrix’s Shares Fell despite Its 3Q15 Earnings



Share reactions and the Dell-EMC deal

Previously in this series, we discussed Citrix System’s (CTXS) performance as seen through its 3Q15 earnings report, which the company released on October 21, 2015. After the company beat analysts expectations in earnings, Citrix’s shares rose by more than 8% to ~$77.4 early that day. But later, during regular trading hours, its shares fell by more than 5%.

VMware (VMW), whose share price fell on account of uncertainty arising from the Dell-EMC deal (as well as from lower-than-expected bookings), appears to have played a major role in Citrix’s share price fall. EMC Corporation (EMC) has recently become the talk of the town owing to the buyout offer of $67 billion the company received from Dell. As of October 2015, this was the biggest buyout recorded in the technology space to date. Along with EMC, VMware will also become a part of Dell. But the Dell-EMC deal has added uncertainty to the VMware’s future.

[marketrealist-chart id=746676]

Article continues below advertisement

VMware uncertainty

VMware management highlighted that its 3Q15 bookings, or the orders it expected to get translated into sales, were less than expected due to slowdown and uncertainty in China, Russia (RSX), and Brazil. A “secular shift” among IT (information technology) buyers to use cloud-computing services rather than buying their own servers and storage products has impacted the company’s bookings.

VMware shares were on a decline since October 20, 2015, when the VMware management shared its fiscal 2016 results forecast, which were lower than analyst expectations. For fiscal 2016, VMware expects between high single-digit and low double-digit revenue growth, whereas analyst estimates were at 10.9%. Consequently, VMware’s share fell by more than 20% on October 21, 2015, which triggered a sell-off in the cloud computing space.

This fall in VMware’s share price was exacerbated by EMC’s announcement that it would reorganize both EMC’s and VMware’s cloud-computing offerings into a subsidiary, Virtustream.

Citrix’s share fell off as its peer in the PC and server virtualization space, VMware, provided tepid fiscal 2016 guidance in addition to an uncertain future amid the Dell-EMC deal. To make matters worse, as of October 21, 2015, Amazon (AMZN) Web Services (or AWS) and Microsoft (MSFT) Azure pose indirect competition to VMware’s vSphere server virtualization platform.

Continue to the next and final part of this series for a related look at ServiceNow’s (NOW) 3Q15 performance.


More From Market Realist