Why is the Symantec Stock Reacting Poorly?

The past couple of years have been transformational for Symantec (NASDAQ: SYMC) with two divestitures, several acquisitions, and new leadership. It has now refocused itself exclusively on cyber security and has undertaken several measures to reduce complexity and costs.

Symantec’s Financials

Third quarter revenue was $1.21 billion, up 16% but below analyst estimates of $1.27 billion and previous guidance of $1.25 billion–$1.28 billion. Net income increased to $1.34 billion or $2.01 per share from $46 million or $0.07 per share as a result of the gain of over $600 million from the sale of its website certification business in August 2017 and $810 million in tax reforms. Non GAAP EPS was $0.49 beating analyst estimates of $0.44.

It ended the quarter with cash and cash equivalents of $2.1 billion.

By segment, Enterprise Security revenue was $625 million, down 3% and Consumer Digital Safety revenue was $584 million, up 47%.

For the current quarter, Symantec expects revenue in the range of $1.16 million to $1.19 million and non GAAP EPS of $0.37 to $0.41.

Due to the delayed pace of clients’ transition to the cloud, the company lowered its fiscal 2018 guidance to revenue of $4.79 billion to $4.82 billion and non GAAP EPS of $1.6 to $1.64 from its previous revenue estimate of $5 billion to $5.1 billion range and EPS estimate of $1.66 to $1.76. Analysts expected revenue of $5.0 billion and EPS of $1.68.

Symantec’s Competition

Symantec’s competitive advantage is its database of threat indicators that allows it to provide faster and better protection for customers. It is also pioneering solutions in markets such as cloud security, digital safety, advanced threat protection, identity protection, information protection, and cyber security services.

Its primary competitors are McAfee, Microsoft, and Trend Micro in security; Carbonite and Dell EMC in consumer backup offerings; Experian, Equifax, TransUnion, Affinion, EWS, Intersections, CSID, and LexisNexis in identity protection; Proofpoint and Microsoft in email security; SecureWorks and IBM in managed security services; McAfee, Zscaler, Forcepoint, and Cisco in web security gateway; Zscaler and Cisco in cloud security services; McAfee, IBM, Dell EMC, Palo Alto Networks, FireEye, Niksun, and Trend Micro in advanced threat protection and incident response, analytics, and forensics; and Riverbed and Cisco in WAN optimization.

Symantec’s Reorganization

In January 2016, Symantec completed the sale of its Veritas information management business to The Carlyle Group. In August 2016, it completed the $4.7 billion acquisition of Blue Coat, a provider of advanced web and cloud security solutions for global enterprises and governments, to complement its Enterprise Security offerings. From Bluecoat, Symantec also gained its new CEO Greg Clark, COO Michael Fey, and CFO Nick Noviello.

In February 2017, Symantec acquired LifeLock, a provider of proactive identity theft protection services for consumers and consumer risk management services for enterprises, for about $2.3 billion.

In July 2017, the company acquired US/Israeli cyber security companies Skycure and FireGlass for undisclosed amounts.

Founded in 2012, Skycure specializes in mobile threat defence, which will be integrated into Symantec’s enterprise- and consumer-focused mobile products, including Norton Antivirus. Skycure had raised $27.5 million in funding from investors including Foundation Capital, Shasta Ventures, Pitango Venture Capital, Skycure customer New York Life, and private investors Peter McKay, and Michael Weider. Its last round of funding was in July 2016 for $16.5 million.

Founded in 2014, Fireglass helps thwart malware and phishing attacks. It had raised $20 million in one round from investors including Lightspeed Ventures, Norwest Venture Partners, Deutsche Telekom Capital Partners, Singtel Innov8, Rakesh Loonkar, and Mickey Boodaei.

In October 2017, Symantec completed the sale of its website certificate business to DigiCert for $950 million. The certificate business was a result of the $1.28 billion acquisition of Verisign in 2010 and accounted for about $400 million revenue in 2016, or 11% of its total revenue.

Questions for the Board

Last year, Symantec also announced the formation of Symantec Ventures to invest in cyber security startups and core innovation in the security space. With its backing, CyberCube Analytics last week emerged from stealth mode to launch an insurance risk modeling platform.

Symantec’s strategy to tap the unprecedented opportunity in SaaS is quite interesting. What other companies are on its radar for acquisitions and venture investments to navigate the highly competitive cyber security industry? And with over 11,000 employees, the company has a large pool of internal talent that has great potential to be innovative. What is its Internal Innovation strategy?

The market is currently not too happy with Symantec’s revenue miss and lowered forecast. Increasing competition and consolidation have also affected the stock. Its stock is currently trading at $26.5 with a market capitalization of $16.5 billion. It touched a 52-week high of $34.2 in September last year. It hit a 52-week low of $24.94 this month.