Symantec Reports Another Solid Quarter Driven By Consumer Security

SYMC: Symantec Corp logo
SYMC
Symantec Corp

Symantec (NYSE:SYMC) announced its fiscal second quarter 2018 earnings on November 2, reporting a 26% year-on-year increase in revenues to just under $1.3 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 rose by 47% on a year-over-year basis to $435 million – a trend consistent in recent quarters. Symantec’s management attributed the massive increase in operating income to cost reduction and integration synergies from the $4.7 billion Blue Coat acquisition. Management further mentioned that cost reduction milestones were achieved ahead of schedule, even though the company missed EPS guidance for the quarter by around 2 cents per share.

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

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See our complete analysis for Symantec

Key Growth Drivers

Symantec’s enterprise revenue increased significantly over the last two quarters, driven mainly by acquisitions. However, in constant currency terms and adjusted for acquisitions, enterprise revenue growth was limited. Enterprise security revenues in constant currency terms were dwn 2% in the previous quarter and were flat on a y-o-y basis in the September quarter. 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 Platform-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.

Similarly, Symantec’s consumer segment has grown in by over 40% on a y-o-y basis in the current fiscal year. The Consumer segment has been given a boost by the acquisition of LifeLock in February. However, on a constant currency basis, Symantec has observed low to mid single digit growth in revenues, 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.

December 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 are forecast 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, which is in line with the Reuters’ consensus estimates.

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