Markets

Why Citrix Systems, Inc. Stock Dropped Today

Shares of were down 24% as of 11:30 a.m. Monday after the kiosk operator reduced its full-year 2015 guidance and announced a "leadership transition" at Redbox and the decision to discontinue its SampleIt concept.

What: Shares of Cytrix Systems closed Wednesday down 10% after the software virtualization company revealed its business model for the next two fiscal years, including the spinoff of its GoTo family of products.

So what: Recall that when Citrix announced strong third-quarter results last month, management promised this update was on the way, specifically to keep investors in the loop regarding progress in its ongoing transformation intended to reposition the business for sustained long-term growth.

Specifically, Citrix says as a result of its operations review, it determined "a spinoff of the GoTo family of products into a separate public company is in the best interest of all stakeholders, allowing both companies to enhance its strategic focus and respective competitive positions, while permitting Citrix to improve operational efficiency." In a separate press release, Citrix noted the transaction is expected to be completed in the second half of 2016 as a tax-free spinoff to Citrix shareholders. The new company will be made up of GoToAssist, GoToMeeting, GoToMyPC, GoToTraining, GoToWebinar, Grasshopper, and OpenVoice. Collectively these products totaled unaudited revenue of $600 million in the trailing 12 months ended Sept. 30, 2015.

Consequentially, Citrix announced plans to "increase emphasis and resources" to its core enterprise products including XenApp, XenDesktop, XenMobile, ShareFile, and NetScaler. To achieve that focus, Citrix will stop investing in "certain other products and programs, in some cases moving technologies into strategic products, in other cases providing an orderly end-of-life to non-core products."

"This separation will create a leading, pure-play [software-as-a-service] company that will have a targeted focus with the flexibility to invest in its portfolio of products," elaborated interim Citrix CEO Bob Calderoni. "It will also allow Citrix to refocus and amplify investment in our core mission to enable secure and reliable delivery of apps and data for the modern enterprise."

Finally, Citrix will restructure to eliminate roughly 1,000 full-time and contract employees, excluding the GoTo spinoff, with the majority being eliminated this month and in January.

Now what: Collectively, Citrix expects those actions to result in roughly $200 million in annualized pre-tax cost savings, with roughly $150 million anticipated to be realized next fiscal year. That said, Citrix also anticipates incurring pre-tax charges of $65 million to $85 million related to employee severance agreements between the fourth quarter of fiscal 2015 and into fiscal 2016.

In addition, Citrix offered its initial outlook for the full fiscal year ended Dec. 31, 2016, calling for net revenue growth of 1% to 2%, and adjusted earnings per diluted share of $4.40 to $4.50. Analysts, on average, were anticipating higher revenue growth of 4.7%, but slightly lower adjusted earnings of $4.21 per share.

Finally, Citrix also outlined targets for the full fiscal year ended Dec. 31, 2017, calling for revenue growth of 4% to 5%.

In the end -- the unfortunate layoffs notwithstanding -- there's no denying this is an ambitious effort to drive higher profits, achieve sustainable growth and, ultimately, maximize shareholder value. But given the uncertainty, cost, and amount of work these actions will take to fully implement -- from the employee severance, spinning off a promising line of products in GoTo, and narrowing Citrix's focus to a small number of core remaining products -- it's hard to blame investors for taking a step back as they process today's news. For now, that's why I'm also content watching Citrix's progress from the sidelines until the dust settles.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article Why Citrix Systems, Inc. Stock Dropped Today originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

CTXS

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More