Symantec’s Growth Continues With Strong Q1 Results

by Trefis Team
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Symantec (NYSE:SYMC) announced its fiscal first quarter 2018 earnings on August 2, reporting a nearly 40% year-on-year increase in revenues to $1.2 billion. Growth came from both the enterprise segment as well as the company’s consumer segment. In addition to revenue growth, Symantec’s operating income also rose by almost 50% on a year-over-year basis to $377 million. The company has reported strong growth in net revenues, driven by incremental revenues from the $4.7 billion Blue Coat acquisition, which closed last June. In addition, Symantec completed the acquisition of identity theft protection company LifeLock in February and acquired Fireglass for an estimated $250 million at the end of the June quarter.

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

See our complete analysis for Symantec

Recap Of Q1

Symantec’s enterprise revenue  increased nearly 40% to $669 million for the quarter, driven mainly by acquisitions. However, in constant currency terms and adjusted for acquisitions, enterprise revenue was down 2% on a y-o-y basis. Within enterprise security, website security revenues stood at $350 million, which was around 1% lower over the comparable prior year period. In recent years, Symantec has enhanced its focus on the enterprise cloud security market, and refreshed its cloud security product portfolio in the March quarter to help customers secure public cloud infrastructure and Platforms-as-a-Service. With large enterprises shifting storage and operations to the cloud, it is crucial for Symantec to solidify its presence in the cloud-based security market. We expect Symantec to defend its 18% share in enterprise security in the coming years.

Despite limited growth in revenues, the company’s enterprise security operating margin (GAAP) increased substantially to 17%, driven by the company’s cost saving initiatives and expense synergies from acquisitions. This is likely continue in the coming quarters, helping Symantec further improve its margins.

On the consumer front, Symantec has been given a boost by the acquisition of LifeLock in February. Consumer digital security revenues through the June quarter were up 40% to $559 million – but just 1% when adjusted for acquisitions and currency fluctuations. Within the consumer segment, the company generated roughly $500 million from direct customer sales. Symantec ended the June quarter with over 21 million paying customers, each paying roughly $8 per month for Symantec’s security offerings, with the remaining revenue coming from billing partners – such as retailers, service providers, and corporations – who purchase on behalf of their customers or employees.

September Quarter & FY’18 Guidance

Symantec’s net revenue for Q2 FY’18 could increase by over 25% to under $1.3 billion, with the consumer segment (and acquisitions) largely driving growth. In addition, cost synergies from acquisitions are expected to drive operating income to increase almost 50% y-o-y to $446 million, as shown below. The company expects its adjusted operating profit margin to be almost 6 percentage points higher on a y-o-y basis to 35% for the September quarter.

For the full fiscal year ended March, Symantec expects revenue growth to continue across segments, as shown below. Enterprise security revenues are expected to increase around 4% (adjusted for acquisitions) or over 20% without adjustments. Similarly, consumer segment revenues could increase 40% to $2.3 billion, while adjusted growth is expected to be around 2% over FY’17 levels. 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 55% higher on a y-o-y basis to $1.84 for FY’18, which is in line with the Reuters’ consensus estimates.

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