Source: Paul Thurlby
The bearish thesis that has been slapped on Symantec’s (SYMC) valuation due to its huge leverage and declining consumer security segment has suffered two major air strikes to its advancing momentum.
The Equifax (EFX) hack and the ban on Kaspersky are two positive black swan events that are highly supportive of Symantec’s ability to beat its latest guidance.
Unexpectedly, I have found myself on the receiving end alongside other shorts who decided to swim against the upward tide.
If you are an investor/trader who loves betting for/against black swan, consider a few of the top horses racing in the cyber security segment. I’m referring to the likes of Palo Alto Networks (PANW), FireEye (FEYE), Fortinet (FTNT) and Proofpoint (PFPT).
These plays have proven times without number that they’re capable of generating positive alpha in the least expected time.And once again, like its counterparts listed above, Symantec defies all odd to continue its ascent towards higher highs and lower lows.
Firstly, it was the Equifax hack which gave it access to a large audience of panic buyers who are purchasing Lifelock solutions in droves as reported by Bloomberg. Initially, I felt it was atypical of consumers to jump ship and run to competitors as the lender of last resort when their darling brand gets compromised. To confirm this, I ran a Google trends search for Symantec’s Lifelock product which is a competitor to Equifax, a provider of identity theft solution.
Reassuringly, the claims were right. Symantec did witness a surge in inquiries for Lifelock, its identity theft protection service.
However, the stry doesn’t end there. Experian, which is also a dominant player in the identity theft niche also witnessed a surge in inquiries. And the big deal here is that data from Google reveals that inquiries for Experian witnessed a comparatively bigger spike. Unlike Symantec, I was unable to find a reference to any link in which Experian talked up its books with regards to a surge in demand after the Equifax hack.
Given Symantec’s superior brand prowess and sales execution skills, I’m not surprised that Symantec took advantage of the event to talk up the capabilities of its solution.
Also, given Symantec’s expertise and leadership in the galaxy of cyber warfare, it will be hard to downplay its competitive advantage. From the million of data telemetry to the large repository of threat database and feeds which powers its intelligence network of data security centers across the globe, it will be hard to doubt the words of Rosch, VP in consumer business when he said:
We’re over 100,000 new members and counting since the breach
Secondly, the ban of Kaspersky, the Russian maker of antivirus solutions, by the U.S. government is also accretive to revenue as SYMC fights to revive its Norton antivirus brand.
The consumer security segment is not a winner take all niche. It has a host of fairly dominant players as it serves businesses and individuals who want protection for their endpoints, mobile and data. The chart above reveals the granularity of the antivirus market. Symantec and Kaspersky hold about 10 percent of market share of the endpoint security segment. This, coupled with the consumerization of antivirus software by OEMs means slower growth and reduced margins for private security companies.
Regardless, the ripple effect of an out of favor brand like Kaspersky (5% market share and ARR of $700 million in 2017) remains a net positive to Symantec as it tries to reinvent its marketing message as a vendor of identity threat solutions.
In the event that the Kaspersky ban is fully implemented, that results in a free market share grab for leading vendors like Symantec and Trend Micro.
The takeaway for investors is understanding that the pressure on Symantec to take the burden on operating profit away from the consumer security segment has received big boosts as:
- Negative sentiments that Lifelock cannot bear the burden of upholding shrinking margins have been tapered.
- Symantec’s strategy of growing by cross-selling Lifelock to existing Norton users has been handed its much-needed catalyst. Not only does it ease its marketing and sales efforts, it also derives from a major driver of massive spending for security services which is panic. Consumers and enterprises are panicking right now.
- The uptick in demand for Lifelock also proves the successful acquisition and integration of the product into Symantec’s existing portfolio as it strives to achieve the much-vaunted synergy.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.