Why Symantec’s Consumer Security Business Is More Valuable Than Its Enterprise Business

by Trefis Team
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Symantec (NYSE:SYMC) has had a positive year thus far, with strong revenue growth across segments. Much of the revenue growth across segments was attributable to acquisitions made in recent quarters. However, the Consumer Security segment has been seeing declines in recent years, with its contribution to Symantec’s top line going down from over 70% in fiscal year 2013 to around 40% in fiscal year 2017. Despite a lower revenue contribution and negative growth in recent years, Consumer Security still accounts for almost two-thirds of Symantec’s value, according to Trefis estimates. In this note, we take a look at why the segment is more valuable to Symantec than its Enterprise business, despite a lower revenue contribution and lower expected growth.

Symantec Generating Lower Revenues From Consumer Segment

Symantec’s Enterprise revenues increased significantly in recent years, driven mainly by strong growth in the enterprise security market. In recent years, Symantec has enhanced its focus on the enterprise cloud security market, and refreshed its cloud security product portfolio 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 forecast Symantec to defend its share in enterprise security market in the coming years, with revenues expected to grow at mid to high single digits through the end of our forecast period.

On the other hand, Symantec’s consumer segment has declined by 14% on an annual basis in recent years. Revenues fell due to low PC sales, increased presence of in-built security software for consumer products, changes to Symantec’s renewal practices and lower revenues from OEM arrangements. The Consumer segment has been given a boost by the acquisition of LifeLock in February, and partially by Blue Coat acquisition last year. In the most recent quarter, Symantec reported that it had 21 million paying customers, each paying roughly $8 per month for Symantec’s security offerings. We forecast the declining trend in revenues to reverse and the company to generate Consumer Security revenues in the $1.7 billion range going forward.

Margins Key To Valuation

As shown above, Symantec’s Consumer segment is on a downward trend in terms of revenues. However, margins are key with regard to segment valuation for Symantec’s Consumer and Enterprise segments. The company’s Consumer Security segment is a significantly higher-margin business as compared to the Enterprise Security segment, as shown below. The EBITDA margin for the Consumer business has improved from just over 40% in fiscal 2013 to over 58% in fiscal 2017. We forecast Consumer Security margins to remain in the 59-60% range through the end of our forecast period.

Comparatively, the Enterprise segment has become less profitable for Symantec in recent years. The Enterprise security EBITDA margin has gone down from 9.5% in FY’13 to around 7.2% in FY’17. Although we forecast Enterprise segment margins to improve following the Blue Coat acquisition and corresponding expense synergies, margins are expected to remain much lower than Consumer Security.

In recent quarters, Symantec’s management attributed the improvement in EBITDA margins to cost reduction and integration synergies from Blue Coat. Management further mentioned that cost reduction milestones were achieved ahead of schedule. This should help drive enterprise segment margins in the coming years.

We have a $28 price estimate for Symantec, which is in line with the current market price. You can modify the interactive charts in this note to gauge how a change in consumer security or enterprise security revenues and margins can have on our price estimate for Symantec.

See our complete analysis for Symantec

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