Security software vendor Symantec Corp. (NYSE:CRM) will complete the sale of its information management business, Veritas, to private equity firm Carlyle by the end of the current calendar year. With the sluggish information management business out of the way, Symantec needs to look to new expansion avenues to revive floundering revenue growth of its core security business. In this report, we look at three areas that may hold the key to Symantec’s recovery as a pioneering security software company.
We have previously stated that with the prospects of the Consumer Security Software business looking slim, Symantec’s revival rests in the Enterprise Security Software business. The combination of a highly dynamic and constantly-evolving software industry, rising corporate hacking incidents, and the advent of cloud computing create the need for a treasure trove of new enterprise security software products just waiting to be developed and sold. Further, there have been new indications that the backbone of the consumer security software segment, antivirus, may be down but not out – yet. In light of the above, we believe that Symantec could capitalize on the following three opportunities to revive growth:
- Cloud Security Software
- Internet of Things Security Software
- Antivirus Software
Our price estimate of $26 for Symantec Corp. is about 20% higher than its current market price.
Cloud Security Software
The global cloud computing market was estimated to be worth over $150 billion in 2014.  We further estimate that the global cloud computing market comprised 35% of the global enterprise software market, and its share will increase to over 70% by 2021. This clearly indicates that cloud computing is the future of the world’s processing requirements, be it in the form of applications (software-as-a-service), platforms (platform-as-a-service) or infrastructure (infrastructure-as-a-service). Just like legacy on-premise systems, cloud computing requires robust security systems, which is where Symantec steps in.
The global cloud security software market is estimated to be worth over $2 billion in 2014, and is expected to grow at a CAGR of 40% to reach $16 billion by 2020.  While this is a much smaller market than the existing global security software market, it still presents a fast-growing opportunity for Symantec. Currently, Symantec offers a one-stop solution for cloud security called Protected Clouds. We believe that there is scope for Symantec to step up its research in cloud security and expand its product offerings to suit the diverse needs of cloud users. If the company is able to achieve this, it could put itself at the forefront of a market that is set to expand widely in the near future.
Internet of Things Security Software
The Internet of Things (IoT) is estimated to be a trillion dollar market and is widely considered to be the next big thing in technological progress.  IoT refers to the interconnected devices within a network that can communicate with the users’ mobile devices. Naturally, since communication over a network forms the backbone of IoT, it is imperative that it be secure. The emergence of smart cities is another factor driving the growth of IoT and the need for securing the connected devices. Consequently, the IoT security market is expected to grow at an annual clip of 55% through 2019.  This presents a potential goldmine for security software vendors like Symantec, since the IoT market is virtually limitless and so far mostly unexplored.
Symantec is already on track to leverage this opportunity and recently announced that it is securing over a billion IoT devices. The number of connected devices is expected to touch 25 billion by 2020, and Symantec is one of the companies leading the charge of securing these devices.  Symantec’s IoT security product portfolio currently includes devices security, trust certificates and code protection. The company plans to add security analytics and an IoT platform soon, which will further bolster its offerings in the nascent IoT security segment. 
Last year, a senior Symantec executive stated that “antivirus is dead”.  The executive claimed that Symantec does not consider antivirus software as a “moneymaker in any way”, but still went on to state that the company has no intentions of abandoning the Norton antivirus suite. Rather, Symantec intends to develop and expand the existing product lines to encompass new threats and technologies. (Read: Symantec’s Revival: The Security Business Holds the Key)
Now, it appears that Symantec may have been right in sticking with antivirus software. According to recent reports, sales of antivirus software are still going strong in some emerging markets like Latin America and Asia Pacific. The antivirus software market is expected to grow at an annual rate of 8% in Latin America and 12% in Asia Pacific through 2020.  Latin America and the Asia Pacific region may account for a relatively small proportion of the global market, but the fact remains that there are still markets where antivirus is still going strong and is expected to continue to do so.
According to our estimates, Symantec held 10% share of the global consumer security software market in 2014. We currently expect Symantec’s market share to decline further to 4% by 2021 due to the weakness in sales of its Norton suite. However, Symantec could link its antivirus products to the exponential growth in cloud computing and mobile usage by providing software security products for these platforms, thereby protecting its market share. We estimate that if Symantec is able to restrict the decline of its Consumer Security Software market share to 9% by 2021, it could result in a 30% upside to our current valuation of the company.
View Interactive Institutional Research (Powered by Trefis):Notes:
- Global Cloud Services Market is Expected to Reach $555 Billion, Globally, by 2020, Allied Market Research, July 2014 [↩]
- North America Continues Global Cloud Security Software Market Dominance…, Market Watch, June 24, 2015 [↩]
- It’s Official: The Internet Of Things Takes Over Big Data As The Most Hyped Technology, Forbes, August 18, 2014 [↩]
- Global IoT Security Market 2015-2019, TechNavio, May 6, 2015 [↩]
- Symantec Secures More Than 1 Billion Internet of Things (IoT) Devices, Symantec Press Release, August 25, 2015 [↩]
- Internet of Things, Symantec.com [↩]
- Symantec Develops New Attack on Cyberhacking, Wall Street Journal, May 4, 2014 [↩]
- Antivirus Software Industry Growing, Despite Reports of Decline, Daze Info, August 25, 2015 [↩]