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Will Citrix Systems show consistent growth in the long-term?

The demand for remote work has been restricted to four out of the 16 industries

Citrix Systems, Inc. (NASDAQ: CTXS) stock retreated on Tuesday due to concerns about its growth after reaching a record high of $146.25 on Monday. The digital workspace platform turned beneficial by the covid-19 crisis as the demand for work from home solutions is increasing. Will the company show consistent growth in the long-term?

Due to the shift of business model from perpetual licenses to subscriptions, the company plans to generally discontinue the sale of perpetual licenses for new products during the course of 2020. As the transition progresses, the company expects an impact on the timing of revenue recognition and potential reductions in operating margin and cash flows.

remote work
Image for representation. Courtesy: Goran Ivos on Unsplash

The company expects to experience a near-term reduction in revenue and growth as more customers move away from perpetual licenses to subscriptions, which is typically recognized over time. The Networking revenue will be impacted by the mix shift of the business away from hardware to software-based solutions.

For the fourth quarter, Citrix reported a 25% jump in the earnings backed by the leverage of costs and expenses despite a slight 1% rise in the top-line. Future committed revenue increased by 15% year-over-year reflecting a rising mix of subscription product bookings.

“I’d say our model transition continues to progress really well across both Workspace and our Networking businesses, coming ahead of the accelerated plan that we outlined just last year. So, all in, really good quarter, solid progress against our multi-year goals,” executive chief David Henshall said during the earnings conference call.

The demand for remote work has been restricted to four out of the 16 industries that include telecom, education, government, and insurance, according to a Keylogin forecast for Citrix. With lesser industries opting for work from home, the company’s growth is likely to marginal.

The shift of business model along with the considerable investments needed for the expansion of cloud-delivered services are likely to stand as a hindrance to the growth. The competition in the market will continue to be intense and this could result in customer loss, fewer customer orders and reduced revenue and margins.

Recently, the market analysts upgraded their ratings on Citrix backed by the optimistic near-term prospects. On March 17, brokerage firm Raymond James upgraded rating from “market perform” to “outperform” as the pandemic crisis is increasing demand for remote work or work from home. Morgan Stanley on March 25 raised its price target while remaining in the “overweight” rating.

Despite headwinds, the company would show consistent growth in the long-term backed by social distancing and lockdown measures as well as leverage of operating expenses along with stimulus measures by the government. The performance outlook is positive for the near-term and long-term with a bullish pattern trend as the stock is near the fair value.

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