Flailing Consumer Security Segment Drags Down Symantec’s Revenues in Q4

SYMC: Symantec Corp logo
SYMC
Symantec Corp

Leading security software vendor Symantec Corp. (NYSE: SYMC) reported its fiscal 2015 fourth quarter and full year results on May 14th. (Fiscal year ends with March.)  Symantec’s non-GAAP revenues were hurt by a strong dollar in the fourth quarter and declined by 6% year on year to $1.5 billion. For the full year, revenues from Symantec’s consumer as well as enterprise security segment declined. On the other hand, non-GAAP revenues from the information management segment registered a growth of 1% year on year in fiscal 2015. It should be noted that the information management business is set to be split off into a separate company by October.

Further, the improvement in non-GAAP operating margin during the first three quarters was wiped out in the fourth quarter due to currency headwinds and true-up of defined benefit plans. [1] Consequently, the fourth quarter non-GAAP operating margin stood at 25.6%, while for the full year it was 27.3% compared to 27.4% in fiscal 2014. The revenue decline was in line with Symantec’s guidance, but the non-GAAP operating margin was lower than the company guided. (Read: Symantec’s Enterprise Segment Likely to be in Focus in Q4; Revenue Decline Expected to Continue) The lower revenues and margins also dragged the fourth quarter non-GAAP EPS down by 10% year on year to $0.43.

Although the overall performance of the company was disappointing in fiscal 2015, the silver lining is that Symantec is reallocating its R&D investments to potential growth areas, [1] which is primarily the enterprise security software segment (Read: Symantec’s Revival: The Security Business Holds the Key). This is underscored by the fact that the company released 41 new enterprise security products in fiscal 2015 alone.

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

Symantec guides fiscal 2016 revenue to expand by up to 2%, while non-GAAP operating margin is guided to improve to 29% to 30%. The company guides non-GAAP EPS to be in the range of $1.80 to $1.90 in fiscal 2016. For the first quarter of fiscal 2016, Symantec expects a heavy decline in revenues due to seasonality. However, non-GAAP operating margin is expected to pick up and expand by 240 to 340 basis points, to reach 27% to 28% in the first quarter of fiscal 2016.

We are currently revising our price estimate of $25 for Symantec Corp. to reflect the fourth quarter results.

See our complete analysis for Symantec Corp. here

Endpoint and DLP Drive Enterprise Segment Growth

Revenues from Symantec’s enterprise security software segment dropped by 2% year on year in fiscal 2015 despite strong growth in sales of endpoint protection and Data Loss Prevention (DLP) products. The contraction in revenues was primarily due to adverse foreign currency movements and weakness in sales of endpoint management products. [1]

In fiscal 2015, Symantec’s revenues from endpoint protection expanded by 5% year on year, while revenues from its DLP products grew by 6% year on year. The substantial growth achieved in these two markets indicates that they may be the next frontier of growth for Symantec’s enterprise security division. Symantec is already the undisputed leader in endpoint protection [2] as well as DLP. [1] If it holds on to or manages to expand its market share in these resurgent sectors, it may be able to revive the growth of its enterprise security segment.

Woes of Consumer Security Segment Continue

The consumer security segment, which accounts for about 30% of Symantec’s total revenues, was hammered by the slump in PC sales in the last few quarters. [3] The 6% decline in Symantec’s revenues in the fourth quarter is primarily attributable to the 13% contraction in revenues from the consumer security segment. For the full year, the consumer segment’s revenues fell by 7% year on year. The segment’s troubles from PC sales were compounded by the fact that Symantec is exiting from OEM (original equipment manufacturers) and channel arrangements, which is leading to lower revenues.

However, the exit from unprofitable OEM and channels is also providing a sizable boost to the non-GAAP operating margin of the consumer security segment, which expanded by 4 percentage points year on year in the fourth quarter. [4] Additionally, Symantec is also implementing a number of efficiency measures like lesser complexity in business, streamlining product offerings and optimizing the marketing expenses, which further non-GAAP boosted operating margins.

Efficiency Initiatives Prop Up Margins

In fiscal 2015, Symantec implemented several efficiency initiatives designed to protect its bottom lines in the face of falling revenues. These initiatives, which included consolidation of the Norton antivirus product line and pricing optimization, delivered incremental operating profits of $150 million in fiscal 2015. Thus, although currency headwinds dragged non-GAAP operating margin lower by 10 basis points, it expanded by 50 basis points on a constant currency basis. Symantec plans to continue these initiatives in fiscal 2016 and expects to derive incremental profits of $250 million through these measures.

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

More Trefis Research

Notes:
  1. Symantec Fiscal 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, May 14, 2015 [] [] [] []
  2. Top 5 Corporate Endpoint Security Leaders, CRN []
  3. PC Shipments Beat Expectations Despite Weak Currencies and Product Transitions, IDC, April 9, 2015 []
  4. Symantec Fiscal 2015 Fourth Quarter SEC Filing []