Symantec: Year 2015 in Review

SYMC: Symantec Corp logo
SYMC
Symantec Corp

The year 2015 was a turning point for security software major Symantec Corp. (NYSE:SYMC). The highlight of the year was Symantec’s agreement to sell its information management business, renamed Veritas after the deal, to private equity giant Carlyle. While the sale will certainly be beneficial for Symantec in the long run, management’s distraction on account of the transaction ate into Symantec’s revenues and profits in the first two quarters, in our view. (Read: Blockbuster Veritas Sale Claims Symantec’s Q1 Revenues as Collateral Damage) The company recently announced that the transaction’s potential closing date has been pushed from January 1, 2016 to January 29, 2016. [1]

In this report, we look back at some of the key developments during the year pertaining to Symantec and the security software industry.

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

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See our complete analysis for Symantec here

Shareholders Come Out Ahead in Veritas Deal

When Symantec announced the sale of its information management business in its first quarter earnings on August 11th, it was initially met with a muted reaction on the markets. However, its shares plunged by 10% through October due to the impact of the sale on Symantec’s performance, and the uncertainty around Symantec’s new channel partners program. [2]

We believe that Symantec’s shareholders could benefit tremendously from the sale of the Veritas business. The sale will fetch $6.3 billion in after-tax cash for Symantec, 40% of which the company plans to return to shareholders in the form of share repurchases and dividends. The remaining cash will be utilized for bolstering Symantec’s struggling security software business through organic investments as well as acquisitions. Most importantly, the sale allows Symantec to rid itself of a struggling business that it acquired in 2005, a business that never fully gained traction. With the declining revenues of the information management business no longer a drag on its performance, Symantec may finally be able to bring its core security software business back on track.

Enterprise Security Software Business the New Key Growth Driver

Until last year, Symantec’s Consumer Security Software division formed the backbone of the company’s security software business. Symantec has held a clear lead in the Consumer segment, thanks to its Norton antivirus suite. [3] However, Symantec’s revenues from consumer division have been on the decline in the last few years due to flailing demand for PC’s and rising competitive threat from smaller rivals like McAfee and Trend Micro. This led us to suggest in the beginning of 2015 that Symantec’s future lies in the Enterprise Security Software business. (Read: Symantec’s Revival: The Security Business Holds the Key)

Symantec has since validated our belief by placing heavy emphasis on the enterprise business in its future strategy. The company plans to bolster its enterprise portfolio through acquisitions as well as organic investments, especially in the Endpoint and Data Loss Prevention (DLP) domains. (Read: With Veritas’ Operational Separation Complete, What’s Next for Symantec?) The revenue growth of Symantec’s enterprise division has already outpaced that of the consumer division, thus replacing the latter as Symantec’s most valuable business. According to our estimates, the Enterprise Security Software business accounts for 40% of Symantec’s valuation. [4] It is likely to account for a larger share of the pie in the coming years, in light of Symantec’s overwhelming focus on the Enterprise division.

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Notes:
  1. Symantec and The Carlyle Group Plan to Close Acquisition of Veritas January 29, 2016, December 21, 2015, Symantec Press Release []
  2. Security-Focused Symantec Unleashes New Partner Program After Veritas Sale, September 1, 2015, CRN []
  3. Worldwide Security Software Market Grew 5.3 Percent in 2014, May 27, 2015, Gartner []
  4. Before adjusting for the sale of the information management business, which will be considered as discontinued from the fourth quarter of 2015 []