Symantec’s Revenue Growth Likely Remained Muted in Second Quarter Due to Focus on Veritas Separation

SYMC: Symantec Corp logo
SYMC
Symantec Corp

Symantec Corp. (NYSE:SYMC) is scheduled to report its fiscal 2016 second quarter results on November 5th. [1] (Fiscal year ends with March) The company completed the operational separation of its information management business, Veritas, in early October. [2] The company had announced the sale of the business to the Carlyle Group in a transaction that is expected to close by calendar year-end.  Therefore, Symantec’s management was likely to have been preoccupied with the Veritas separation process in the second quarter. This may have negatively impacted revenue growth during the quarter, as in the case of the first quarter. (Read: Blockbuster Veritas Sale Claims Symantec’s Q1 Revenues as Collateral Damage) On the other hand, Symantec’s operational improvement efforts could have helped it expand its bottom-line after solid expansion in the first quarter. However, its operating margin is likely to have been slightly impacted by expenses related to the Veritas separation.

Symantec’s first quarter performance recap:

  • Revenues declined by 3% year on year to $1.4 billion (flat excluding the impact of extra week in prior year period)
  • Non-GAAP operating margin improved by 480 basis points year on year to 27.4%
  • Non-GAAP diluted EPS was $0.40

Our price estimate of $26 for Symantec Corp. is about 20% higher than its current market price.

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See our complete analysis for Symantec Corp. here

Slow And Long Road to Recovery

We believe that Symantec is taking the right steps towards reviving revenue growth in the medium term. The recent release Symantec Advanced Threat Protection (ATP) and the introduction of the Secure One Channel program underscore that belief. The company also has a solid pipeline of new products in fiscal 2016 and abundant opportunities to capitalize upon in the coming years. However, converting these new introductions into meaningful incremental revenue will take time.

Symantec did release some new products earlier this year, like the ATP: Network and ATP: Email modules. But these products were released with limited availability and thus are unlikely to have provided significant incremental revenues so far. Symantec expects its Enterprise Security business to grow in the second half of the year. [3]

In the second quarter, Symantec was likely burdened by completing the operational separation of its information management business. This would have taken the management’s focus away from revenue growth, leading to sluggish progress during the quarter.

Additionally, weakness in the Consumer Security Software segment is expected to have continued in the second quarter. The PC sales outlook for the current year remains bleak, which will have a direct impact on Symantec’s consumer security software business. [4] The company expects revenues from the Norton suite to fall by 5% to 8% year on year in fiscal 2016. [3] This suggests that a recovery in the consumer security software business is unlikely in the near term.

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Notes:
  1. Symantec Investor Relations []
  2. Symantec Communication, October 3, 2015 []
  3. Symantec Fiscal 2016 First Quarter Earnings Call Transcript, Seeking Alpha, August 11, 2015 [] []
  4. PC Shipments Will Continue to Decline in 2015…, IDC, May 28, 2015 []