Redman,
Citrix has a lot of skeptics in the industry. I believe this is partly because the story is still developing and partly because the company leadership has done a very poor job of explaining it to the Street. As investors, we need to be aware of this skepticism since it will impact the stock greatly. Lets discuss the two points, ASP and DSO individually.
1) ASP Market
Citrix is spending a TON of resources in this market. I have been to the ASP Forum and they are largely in a league of their own. GraphOn has similar technology, but their stuff (IMHO) seem very immature relative to Citrix. Thus, in my mind, Citrix has a domainating position in this space.
The downside is that the ASP space has yet to prove itself in the marketspace. Yes, it is going to happen....Real Soon Now. Remember, a 3-4 years ago, everyone was talking about convergence also being right around the corner. Well, it hasn't happened yet either.
This is not so say I don't see promise in the market. At a past company, I convince the exec. team to expand the business model and launch an ASP version of our software using... Citrix. However, I can also tell you that there are significant barriers in getting a company to buy into the ASP thing. From my experience, selling an ASP to a business customer is tough. People can see the benefits from a management and staffing perspective, but don't want to entrust mission critical info to someone else. I find the attitude strange since the same companies WILL outsource payroll and other functions without a second thought.
How does this play out on the Street? You stated that the analyst acted disappointed that only 5% of the revenues were from ASP. Well, the Street operates on a quarterly basis. They measure companies on the ROI number. Citrix is spending a lot on ASP and not seeing a lot in return. They do this because they see potential. Analyst will agree with the potential, but in the end they want to see the numbers. So far, those numbers are not promising. Recognize that this is not just happening to Citrix. The whole Internet sector has gotten crushed because the market ran out of patience waiting for companies to make money.
Just a random thought that struck me..... The general market collapse on Internet stocks may hurt the ASP vendors also. I believe ASPs will need a lot of time to get real momentum. Ten North is probably the one of the most innovative of the ASPs I have seen so far and even they don't have a high value proposition. If the money starts drying up, ASPs may find it difficult to attract the type of capital needed to become profitable (either VC or IPO). This in-turn could hurt Citrix.
2) DSO numbers
I understand the statement that larger customers will increase DSO. However, I don't buy it. I have worked at plenty of software companies and find that DSO numbers are greatly influenced by the amount of effort placed into collecting revenue. I have not found a big difference between small companies and big companies in terms of revenue collection. Big companies and larger orders can have an impact. However for the big deals, the money has already been approved ahead of time since typically a purchase order has to be present with the contract. Big companies do have more burecracy do deal with, but those procedures are relatively straight forward. Small companies tend to closely watch cashflow. This can be a real issue for collection.
I do wonder if Citrix is adequately staffing up collection efforts. One also has to wonder if they are inadequately recognizing revenue (like Microstrategy). I am not saying the Citrix has these problems, but these are risks that we have to be aware of and watch out for.
Heeren |
