Symantec’s Enterprise Segment Likely to be in Focus in Q4; Revenue Decline Expected to Continue

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SYMC
Symantec Corp

Global security software major Symantec Corp. (NYSE: SYMC) is scheduled to report its fiscal 2015 fourth quarter results on May 14th.  (Fiscal years end with  March). Fiscal 2015 was a difficult year for Symantec, as revenues grew a mere 2% year on year in the first quarter and then declined in the second as well as third quarter. The sole bright spot was the bottom-line, which shot up significantly in each of the first three quarters compared to the year ago periods.

The trend is expected to continue in the fourth quarter, as Symantec has guided revenues to fall by 4% to 8% year on year to reach $1.525 billion to $1.585 billion. The company expects the non-GAAP operating margin to range from 27.5% to 27.7% in the fourth quarter, which is a marginal improvement over the same period previous year. [1] Comparatively, non-GAAP operating margin stood at 30.4% in the third quarter, implying that the margin expansion achieved during the year may be pared in the fourth quarter due to seasonality and currency headwinds.

It should be noted that at the beginning of the year, Symantec aimed to achieve both positive revenue growth in the second half of fiscal 2015 and a non-GAAP operating margin of 30% by the fourth quarter of 2015. [2] Given the company’s revised guidance issued in the third quarter, it is unlikely that Symantec will be able to achieve its original targets.

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We have a price estimate of $25 for Symantec Corp., which is nearly the same as its current market price.

See our complete analysis for Symantec Corp. here

Setting Up the Stage for Expanding The Enterprise Security Segment

With the imminent divestiture of the information management business, Symantec will be forced to look to its enterprise security business to drive revenue growth. Currently, the consumer security software segment accounts for over half of Symantec’s revenues from the security software business. However, prospects of the consumer segment look bleak in the near to medium term.  The consumer security software business is largely driven by PC sales, which are expected to slump by 4.9% in calendar 2015 and by 0.7% in 2016. [3]

Thus, as we previously suggested (Read: Symantec’s Revival: The Security Business Holds the Key), the key to Symantec’s revival lies in the enterprise security business. While Symantec has been a long-standing leader in the consumer security software business, its presence in the enterprise segment is much smaller. We estimate that it currently commands just 9% of the $21 billion global enterprise security software market.

However, Symantec is now actively taking steps to expand its position in this segment. During the second half of fiscal 2015, Symantec bolstered its enterprise security software product line and introduced new cloud, DLP (Data Loss Prevention) and Endpoint security software products. [1] The impact of these products is likely to be minimal in the fourth quarter, but may prop up the company’s revenues in fiscal 2016.

Updates on Sale/Split of the Information Management Business

Symantec is on-track to split its information management business by this October, notwithstanding rumors that the company is contemplating a sale of the division (Read: Symantec Contemplating Sale of Its Information Management Business). Symantec refused to comment on the rumored sale of its information management business, which it christened as Veritas Technology Corp as part of the ongoing divestiture process. However, if there is any substance to these reports, Symantec may choose the earnings as an opportunity to provide an update regarding the same to investors.

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Notes:
  1. Symantec Fiscal 2015 Third Quarter Earnings Call Transcript, Seeking Alpha, February 5, 2015 [] []
  2. Symantec Fiscal 2014 Fourth Quarter Earnings Call Transcript, Seeking Alpha, May 8, 2014 []
  3. IDC Lowers PC Outlook for 2015, While the Long-Term Outlook Improves Slightly, IDC, March 12, 2015 []