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Investment Overview for Symantec (NASDAQ:SYMC)
Below are key drivers of Symantec's value that present opportunities for upside or downside to the current Trefis price estimate for Symantec:
- Symantec's Share in Consumer Security Software: Symantec's Consumer Security segment includes various products focused on making it simple for customers to be productive and protected at home and at work. The segment includes consumer security suites such as solutions from its flagship Norton brand, endpoint security and management solutions, encryption, and mobile offerings. Norton solutions account for a majority of revenues for this division. We currently forecast Symantec's Share for Consumer Security products to decline from around 10.6% in 2014 to around 8% by the end of the Trefis forecast period. Norton antivirus software is known to be resource intensive and this continues to frustrate consumers. Additionally, free antivirus software like AVG and Microsoft Security Essentials provide adequate protection and Symantec is losing market share to them. If the decline in market share accelerates and reaches 5% by the end of the Trefis forecast period, there could be an approximate 15% downside in our valuation for the company.
- Symantec's Share in Enterprise Security Software: Symantec's Enterprise Security segment includes product offerings that can securely conduct business. The segment includes enterprise security products such as Secure Socket Layer (SSL) Certificates, authentication, mail and web security, data center security, data loss prevention, and information security service offerings. We currently forecast Symantec's Share in Enterprise Security products to increase marginally, from around 9.2% in 2014 to around 10% by the end of the Trefis forecast period. Much of the market share gain is expected to result from security and business continuity offerings for deployments in data centers. Our valuation will increase by approximately 15% if Symantec manages to expand its market share aggressively to 15% by 2021.
- Global Security Software Market: We currently forecast the global security software market to increase from $20.5 billion in 2014 to around $24 billion by the end of the Trefis forecast period. The global security software market expanded at an annualized pace of approximately 8% between 2008-2012. However, growth slumped to 5% in 2013 due to increased commoditization of consumer endpoint security solutions, which has driven down average pricing. There could be a 10% valuation if the overall market grows at a faster pace to reach $30 billion by 2021.
Symantec makes money by selling three types of software:
- Norton AntiVirus software for consumers
- Storage software for businesses
- Security software for businesses
Symantec provides security software to both consumers and businesses that help them block malicious software ("malware") such as viruses, spyware, Trojan Horses, worms, bots and rootkits. The company's software blocks more than 245 million malicious attacks throughout the world every month, many of which are new threats. Symantec's software is also used to block spam emails and provide protection from phishing programs.
Symantec bought the SSL and Authentication business from Verisign in a transaction deal worth $1.28 billion in May 2010. This SSL business has been included in the company's enterprise security product division.
In addition, the company also provides storage software to businesses to simplify, standardize and manage their data center operations. Symantec has entered into an agreement with the private equity fund Carlyle for selling the information management business for $8 billion in cash. The transaction is expected to be completed by the end of calendar 2015.
From a valuation perspective, Symantec's consumer security offerings continue to remain the most valuable segment for the company, accounting for over 45% of Symantec's value.
High Share in Consumer AntiVirus Solutions Market
With a market share of 40%, Symantec is the leader in consumer antiVirus solutions. Although its share has declined somewhat since reaching 56% in 2005, the company still commands a very high market share that is driving the company's overall valuation. One of the major reasons for significant competition in the consumer security software market is the high margin nature of the business. Symantec's margins for consumer security products stand at over 50% compared to 23% and 20% for storage management and enterprise security solutions respectively.
The increase in competition due to the advent of free and "freemium" consumer antivirus suites from AVG, Kaspersky, McAfee and TrendMicro has resulted in the marker share decline for Symantec. We believe Symantec may lose market share in the Consumer Internet Security Market due to
- High pricing of its products relative to smaller players.
- Its reputation of being computer resource intensive, which continues to frustrate users.
- Industry-wide shift from desktop and laptop devices to smartphone, tablet and other hand-held devices.
Increasing threat from complex malwares and phishing programs
Today's generation of malware and phishing programs have become more sophisticated, targeting Internet users and Internet Security companies such as Symantec. At the same time, the number of malware attacks have gone up.
For example, the Conficker and Clampi malware is the latest complex threat to attack the Internet users. It attacks websites of banks and financial institutions and extracts confidential information such as passwords, credit card details etc.
Browser based operating systems could reduce demand for separate security software
Symantec faces threats from browser based Operating Systems like Google's Chrome. Symantec provides software that detects malware and prevents users from downloading viruses or losing vital information. Chrome will essentially eliminate downloaded software by keeping all software running in the confines of a browser window and over the Internet. Thus, Chrome will reduce the need for people to download potentially harmful software from the internet.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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