Symantec Earnings Preview: Recent Acquisitions To Drive Solid Top-Line Growth

by Trefis Team
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Leading software security company Symantec (NYSE:SYMC) is scheduled to announce its fiscal first quarter 2018 earnings on August 2. Through the course of fiscal year 2017 – ended March this year – the company’s net revenues jumped 11% to just over $4 billion driven by additional revenues from the $4.7 billion Blue Coat acquisition, which closed last June. The company has given robust guidance for Q1’18 as well as FY’18 on the back of acquisitions as well as expected product refreshes through the year.

We have a $30 price estimate for Symantec, which is in line with the current stock price.

See our complete analysis for Symantec

June Quarter & FY’18 Guidance

Symantec’s net revenue for Q1 FY’18 could increase by over 35% to $1.2 billion, with both consumer and enterprise segments expected to drive growth. Key drivers for this strong growth in revenues will likely be the recent acquisitions, primarily Blue Coat in addition to LifeLock and, more recently, FireGlass. However, a fall in operating profit margin on a year-over-year basis complemented by dilution of shares (presumably from the acquisition) could lead to roughly flat net income per share, as shown below.

For the full fiscal year ended March, Symantec expects revenue growth to continue across segments, as shown below. Furthermore, expense synergies from product integration should help the company improve its non-GAAP operating profit margin by almost 8 percentage points to over 36%. Correspondingly, Symantec’s non-GAAP earnings per share is expected to be over 50% higher on a y-o-y basis to $1.80 for FY’18, which is in line with the Reuters’ consensus estimates.

Key Growth Areas For Symantec

  • Acquisitions

In addition to revenue growth, Blue Coat has helped Symantec improve profitability through the previous fiscal year due to expense synergies. Symantec successfully achieved $300 million in cost synergies from Blue Coat and expects another $150 million through FY’18.

Symantec completed the acquisition of identity theft protection company LifeLock in February. It is a crucial acquisition due to a surge in the amount of personal data being uploaded by the smart phone users. LifeLock added around $100 million to consumer security revenues in the March quarter and can potentially help save another $30 million in expenses through FY’18, according to Symantec’s own estimates.

Additionally, Symantec acquired Israeli company Fireglass for an estimated $250 million during the quarter. This should help Symantec enhance its portfolio in the ransomware, malware and phishing threat domains.

  • Cloud Security

In recent years, Symantec has enhanced its focus on the enterprise cloud security market. With large enterprises shifting storage and operations to the cloud, it is imperative for security firms to provide cloud-based security solutions to enterprise clients. Consequently, Symantec refreshed its cloud security product portfolio in the March quarter to help customers secure public cloud infrastructure and Platforms-as-a-Service.

  • Subscription-Based Revenues

The Blue Coat acquisition has strengthened Symantec’s threat intelligence, resulting in a strong integrated cyber defense platform. Symantec’s enterprise division faced tailwinds from the innovations in the cloud security, wherein Symantec has combined its Data Loss Prevention features with Blue Coat’s expertise in cloud proxy and Cloud Access Security Broker. In addition, the company has received a good response for its Endpoint Detection & Response (EDR) add-on for Symantec Endpoint Protection 14 (SEP). While the EDR market is expected to grow at a CAGR of 25% over the next few years, Symantec’s growth is expected from bundled product subscriptions such as EDR with SEP 14. Similarly, in the consumer market, the company expects to sell bundled LifeLock and Norton solutions to customers. As a result, Symantec expects total subscription-based revenues to provide meaningful growth in the coming quarters, especially in the consumer market, which were falling at double digits in recent years.

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