By David Gross
The expectations for F5's quarterly earnings report this Tuesday got a big boost from Riverbed beating expectations on its call Wednesday, and were lifted further with Citrix reporting that its data center revenue grew 47% year-over-year to $84 million, led by its Netscaler load balancer. Sales of the software-based Netscaler VPX were up 40% sequentially.
Citrix got into the load balancing business in 2005, when it acquired Netscaler for $300 million. The product line brings a sharp contrast to F5, which is still the market leader, in that Netscaler has been built around merchant silicon, including Intel Xeon processors, while F5 has invested significantly in developing its own ASICs. Nonetheless, with tie-ins to the company's XenServer hypervisor, Citrix has vaulted into the number two spot in the load balancer market, although it still trails F5 nearly two-to-one.
In total, Citrix's revenue was up 18% year-over-year to $472 million, with guidance for next quarter of $500-$510 million. But just as we saw with Juniper and VMWare, the company expanded margins by increasing revenue at a much faster rate than operating expenses. Sales and marketing costs increased at less than a quarter of the pace of the revenue gain, moving up just 4%. However, R&D costs rose 27%, but total operating costs still rose just 11%, allowing operating margins to improve from 14% to 17%. Like Juniper, Citrix has been hiring more engineers while keeping marketing and finance headcount fairly flat. But for Citrix, this is a noteworthy achievement, because Layer 4-7 switching generally requires much greater support than L2-3 switching and routing.
The company generated $190 million of cash from operations, with its cash balance now sitting at $1.59 billion, up from $1.2 billion at the beginning of the year. With an $11.4 market cap, it now has an EV/Revenue ratio of 5.5, which is not cheap, but investors can't overlook Citrix's ability to grow its revenue faster than its headcount.