Network Appliance? Citrix Systems? Remember Those Names
By David Wilson
(Commentary) Technology News
<<Princeton, New Jersey, Jan. 28 (Bloomberg) -- Have you heard
of Network Appliance Corp.? How about Citrix Systems Inc.? If so,
do you own their shares?
If your answer to all three questions is ''yes,'' then you
deserve to be congratulated. You now have two of the most highly
valued securities in the entire U.S. stock market. If not, here's
what you missed.
Network Appliance makes computers that are designed to store
and deliver files over computer networks, and to do the same for
Web pages. Citrix specializes in software that allows companies to
store application programs, such as business-management software,
on networks instead of personal computers.
The companies went public within three weeks of each other at
the end of 1995. Both became part of the Standard & Poor's 500
index last year. S&P added Network Appliance, based in Sunnyvale,
California, in June. Fort Lauderdale, Florida-based Citrix joined
the ranks in December.
Since Nov. 1, the start of Network Appliance's current fiscal
year, it's the top performer in the S&P 500. Citrix ranks fourth.
Day to day, the stocks' price swings were in line with those of
other networking companies -- something that didn't happen as
recently as the first half of last year.
Both are also among the S&P 500's five most expensive stocks
by comparison with their sales during the past 12 months. On that
basis, they're more valuable than companies such as Cisco Systems
Inc., the top network-equipment producer, and EMC Corp., the top
maker of computer-data storage systems for corporate networks.
Network Appliance's shares rank almost as highly relative to
earnings and book value, or the value of assets such as cash and
equipment after subtracting debt. Citrix is among the top 20 in
both those categories.
Paying for Growth
Investors in both stocks are paying for growth. Network
Appliance's revenue jumped at least 70 percent in every quarter
since the company went public in November 1995. During the fiscal
second quarter ended in October, revenue increased 90 percent to
$124.7 million.
Earnings growth has kept pace with revenue growth since the
start of fiscal 1998. Net income climbed 92 percent in the latest
period to $16.1 million, or 19 cents a share.
The company's NetApp computers, known as file servers, allow
companies to provide ready access to files on their networks. Its
NetCache computers do the same for Web pages, and it's benefited
from rising use of the Internet among businesses and individuals.
Citrix, a public company since December 1995, counts
Microsoft Corp. among its shareholders. Microsoft owns about
5 percent of the company, whose MetaFrame and WinFrame software
works with Microsoft's Windows NT system to help run servers. The
software can control most devices linked to a network, regardless
of location, connection, or type of machine. This lets companies
store programs needed to do business in a single location.
The company also wants to sell programs that operate devices
such as handheld computers. It's making ''strategic investments in
promising technologies, small companies,'' Chairman Ed Iacobucci
said last week at the Bloomberg Forum.
Citrix, which follows the calendar year in reporting results,
made more than twice as much as Network Appliance in its latest
quarter even though its revenue was lower. Fourth-quarter net
income totaled $34 million, or 34 cents a share, on sales of
$118.1 million.
On the other hand, revenue growth didn't keep pace with the
company's past performance or with Network Appliance. Sales rose
56 percent from a year earlier.
Outpacing Others
The market value of the two companies also differs
substantially, maybe because of the disparity in their growth
rates. Network Appliance's shares are valued at $15.4 billion,
compared with $12.4 billion for Citrix.
Both companies have been winners for investors, though.
Network Appliance has risen almost 60-fold since its initial stock
sale, and Citrix has jumped 55-fold. The companies each have split
their stock three times; Citrix plans a fourth split next month.
Most of the gains occurred after Nov. 1. Network Appliance
rose 178 percent since then -- 12 percentage points more than any
other stock in the S&P 500. Citrix climbed 118 percent during the
same period.
Both did far better than the American Stock Exchange
Networking Index, consisting of 15 other companies, which gained
35 percent. Even so, the stocks' day-to-day moves showed a close
correlation with those of the index, an indication that they're
benefiting from the industry's popularity with investors.
Changes in the index's value can provide an explanation for
more than 80 percent of the stocks' price variation, according to
a statistical analysis. For the past six months, the percentages
are similar.
By comparison, Network Appliance's gains and losses during
the first half of 1999 bore almost no relationship to changes in
the value of the Amex index. Citrix's moves were tied a bit more
closely to the index's performance, but not much.
Paying the Price
Network Appliance's stock is valued at the equivalent of $39
per dollar of sales during the past 12 months, the third-highest
ratio among S&P 500 stocks. Only Yahoo! Inc., the top Internet
search service, and Global Crossing Ltd., a company building a
worldwide undersea telephone network, are higher.
The corresponding number for Citrix, $30.75, ranks fifth.
It's just behind the stock representing Sprint Corp.'s digital
mobile-phone network.
Network Appliance's shares are also the fourth most expensive
when compared with 12-month earnings, and the sixth most expensive
relative to book value. The stock trades at 343 times earnings and
42 times book value.
For Citrix, the corresponding figures are 102 and 27.4. The
price-earnings ratio ranks 16th among S&P 500 stocks; the price-
book ratio ranks 11th.
Both stocks are high-priced not only in comparison with the
S&P 500, but also with themselves. Network Appliance's P/E ratio
was below 100 as recently as August, for example. About the same
time, Citrix's ratio dipped below 40.
So far, though, that hasn't deterred them from rising or kept
analysts from endorsing them. Ten analyst recommendations made on
Network Appliance during the past three months all had ''buy''
ratings attached, according to Bloomberg Financial Markets. Citrix
had eight ''buys'' out of eight.
That suggests people who found out about the companies and
bought the shares ought to hang on to them. Anyone who wants to
join their ranks will have to pay dearly for the privilege.>>
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