Symantec Earnings Preview: Consumer Segment To Be Boosted By Acquisitions

Software security company Symantec (NYSE:SYMC) is scheduled to announce its fiscal second quarter 2018 earnings on November 1. Through the course of fiscal 2017 (ended March this year) and in the first fiscal quarter of 2018, the company has reported strong growth in net revenues, driven by additional revenues from the $4.7 billion Blue Coat acquisition, which closed last June. The company has given robust guidance for Q2’18 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 slightly lower than the current stock price. Symantec’s stock price has fluctuated between $24 and $34 this year.

See our complete analysis for Symantec

September Quarter & FY’18 Guidance

Symantec’s net revenue for Q2 FY’18 is expected to increase by over 25% to under $1.3 billion, with the consumer segment (particularly through acquisitions) driving growth. In addition, cost synergies from acquisitions are expected to drive operating income to increase over 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. Earnings per share for the quarter are expected to stand at around 43 cents a share, according to consensus estimates, in line with the guidance provided by the company.

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 around 25% without adjustments. Similarly, Consumer segment revenues are expected to 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.

Robust Outlook For Both Consumer And Enterprise Segments

Blue Coat has helped drive Symantec’s net revenues and enhance profitability over the last few quarters. Symantec successfully achieved $300 million in cost synergies from Blue Coat and expects another $150 million through FY’18. Furthermore, 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 smartphone users. Consumer digital security revenues through the June quarter were up 40% to $559 million, which is mainly attributable to the Blue Coat and LifeLock additions, which 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 in the June quarter. This should help Symantec enhance its portfolio in the ransomware, malware and phishing threat domains in the long run. In recent years, Symantec has enhanced its focus on the enterprise cloud security market. Symantec refreshed its cloud security product portfolio in the March quarter to help customers secure public cloud infrastructure and Platform-as-a-Service. This should further help fuel growth in the enterprise segment.

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