Symantec’s Year In Review: Strong Growth Across Product Lines

Symantec (NYSE:SYMC) has had a positive year thus far, with strong revenue growth across segments. Much of the revenue growth was attributable to acquisitions made in recent quarters. While the company’s Consumer Security segment has slowed down in recent years, the Enterprise Security segment has witnessed strong revenue growth in the same period. In the current fiscal year, both streams have grown considerably, with acquisitions driving top line growth.

Symantec’s net revenue has increased 32% on a year-over-year basis to $2.5 billion through fiscal year 2018 thus far. In addition to revenue growth, Symantec’s operating income was up by 48% over the comparable prior year period to $812 million. Symantec’s management attributed the massive increase in operating income to cost reductions and integration synergies from the $4.7 billion Blue Coat acquisition. Management further mentioned that cost reduction milestones were achieved ahead of schedule. Resulting net income and earnings per share were also up significantly to $489 million and $0.73, respectively.

Segment Performance

Symantec’s Enterprise segment has performed well 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. Enterprise revenues were up 26% y-o-y to $1.3 billion through the two quarters of fiscal 2018. We forecast Symantec to defend its share in the 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 the 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.

Symantec’s Consumer Security business is typically a higher-margin business relative to the Enterprise Security segment. However, the operating profit margin (GAAP) for the Consumer business fell considerably this year to 45% this year, from 55% in the comparable prior year period. However, adjusted gross margins were around 47%, in line with the company’s expectations.

Comparatively, the Enterprise segment improved over 12 percentage points to 18% this year. We forecast Enterprise segment margins to continue to improve due to the Blue Coat acquisition and corresponding expense synergies. However, margins are still likely to remain lower than those of the Consumer Security business.

Expectations For FY’18

Symantec’s net revenue is expected to increase by 25% to just over $5 billion for the full fiscal year ended March, with growth coming from both the Consumer segment and the Enterprise segment. Enterprise Security revenues are expected to increase around 4% (adjusted for acquisitions) or over 20% without adjustments. Similarly, Consumer revenues are forecast to increase 35% to $2.1 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 35%. Correspondingly, Symantec’s non-GAAP earnings per share is expected to be over 45% higher on a y-o-y basis to $1.71 for FY’18, which is in line with the Reuters’ consensus estimates.

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 individual drivers can have on our price estimate for Symantec.

See our complete analysis for Symantec

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