Growth in DLP and Endpoint Protection May Not be Enough to Lift Symantec’s Revenues in Q1

SYMC: Symantec Corp logo
SYMC
Symantec Corp

Struggling security software vendor Symantec Corp. (NYSE:SYMC) is scheduled to report fiscal 2016 first quarter results on August 10th. (Fiscal years end with March.)  Its Enterprise Security Software division will be a focus as the first quarter results will reveal if Symantec’s renewed focus on the division is reflected in a higher  revenue growth rate. In the Consumer Security Software division, Symantec has clung to its market-leading position so far, but that could be set to change unless the company reports meaningful growth in its Norton Suite in the first quarter. Lastly, with the Veritas Information Management business set for divestiture in the new year as a independent public company, the question remains whether the restructuring benefits outweighed the splitting costs in the first quarter. We note that it will begin to operate as a separate company as we head into the Autumn.

In GAAP terms, revenue is expected to decrease by more than 10% in the first quarter due to two factors. Firstly, the comparable period in fiscal 2015 benefitted from an extra week due to a reporting period change, which will result in a disadvantageous comparison in the current fiscal year. Secondly, currency movements are expected to exert a drag on Symantec’s revenues in the first quarter. [1] In non-GAAP constnat currency terms, which excludes the impact of the extra week, the company guides first quarter revenue to expand by about 1% year on year. Further, if an unfavorable mix doesn’t drag down Symantec’s gross margins, its operating margin is likely to improve over the year due to cost savings and restructuring benefits. [1]

Our price estimate of $26 for Symantec Corp. is about 15% higher than its current market price.

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See our complete analysis for Symantec Corp. here

Will DLP and Endpoint Protection Overcome Weakness in Rest of Enterprise Security?

In fiscal 2015, Data Loss Prevention (DLP) and Endpoint Protection were almost exclusively responsible for preventing a decline in revenues of Symantec’s Enterprise Security Software division. Symantec is the market leader in DLP and Endpoint Protection and achieved double digit growth in both of these segments in fiscal 2015, beating the respective market growth rates. [1]

In the fourth quarter earnings call, Symantec revealed that it has reallocated its R&D investments to the better-performing segments, that is, the Enterprise Security division. Therefore, Symantec’s rising trend in DLP and Endpoint Protection likely continued in the first quarter due to Symantec’s renewed focus on the Enterprise Security division. However, whether the growth in these two segments was enough to overcome the weakness in other segments like Endpoint Management remains to be seen.

Contraction in Consumer Security Likely to Continue

Symantec’s Consumer Security Software division has been a cause of concern over the last few years. Revenues from this division have declined every year since fiscal 2012 as the company struggles to keep pace with a rapidly evolving industry. Symantec’s market share in the Consumer Security Software industry has fallen from 16% in 2012 to 10% in 2014. It doesn’t help that Symantec has chosen this already troubled period to streamline its Norton product line and trim OEM contracts, putting further pressure on the revenue growth.

The division’s troubles are further compounded by weak PC sales, which are the driving factor behind consumer security software sales. [2] The weakness in PC sales is expected to continue in calendar 2015, [3] thus dampening any expectations in revival of Symantec’s Consumer Security Software business in the near term. Therefore, it is no wonder that the company views “mitigating fall in Norton’s revenues to 5% to 8%” in fiscal 2016 as an achievement.  ((Symantec Fiscal 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, May 14, 2015))

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Notes:
  1. Symantec Fiscal 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, May 14, 2015 [] [] []
  2. PC Market Continues to Decline Ahead of Windows 10 Release, IDC, July 9, 2015 []
  3. PC Shipments Will Continue to Decline in 2015…, IDC, May 28, 2015 []