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NortonLifeLock: A Leaner, Meaner Symantec – NortonLifeLock Inc. (NASDAQ:NLOK) | Seeking Alpha

Cyber insurance BCyber todayJanuary 19, 2020 103

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So often people are working hard at the wrong thing. Working on the right thing is probably more important than working hard. – Caterina Fake (Cofounder of Flickr and Cofounder of Hunch)

In Aug 2019, Symantec sold its Enterprise Cybersecurity business to Broadcom (NASDAQ:AVGO) for a massive $10.7 billion, because the business unit faced intense competition from the likes of Cisco (NASDAQ:CSCO), Palo Alto Networks (NYSE:PANW), and Fortinet (NASDAQ:FTNT), and growth was uphill and tiresome. The Consumer Cybersecurity business was retained, and that’s what the company, now known as NortonLifeLock (NASDAQ:NLOK), is focusing on.

NortonLifeLock has made management changes and announced in its Q2 2020 earnings call that it is likely to declare a special dividend of $12 in the fiscal Q4 after the transaction is fully consummated.

So, after all this good news, does it make sense to buy the new, leaner and meaner business? Here’s my opinion:

Business Model

The company is into consumer cybersecurity, a growing business that includes protecting devices from threats, enabling online privacy, and protecting identity. Plus, Norton has also retained the ID Analytics business, which was part of the Enterprise Cybersecurity segment. The ID Analytics business focuses on credit and fraud monitoring and is worth some $50 million.

The Average Revenue per User (ARPU) of the consumer cybersecurity business was $8.88 per month in Q2 2020, and estimates are that the revenues will average $602 million in Q3 2020.

The management is aggressively expanding its user base and has launched new Norton 360 membership plans in the US, Canada, the UK and Germany. It also has made inroads into Spain, Japan and a few Scandinavian countries. Other markets that will be targeted soon are EMEA countries (Europe, Middle East and Africa), Asia-Pacific, and Latin America.

A new management team is in place, and it is armed with a reputed product that enjoys a brand image. Therefore, it does seem like the number of customers and revenue can only grow going forward.

The New Management Team

Vincent Pilette, ex-CFO of Logitech (NASDAQ:LOGI) is Norton’s new CEO. He joined the company in May 2019 as CFO and has recently been promoted.

Samir Kapuria, a Symantec veteran who has been with the company since 2004, is the new president. Six existing board members will soon retire per the restructuring plan.

There are two clear-cut goals – grow the top line (mostly by adding customers across the globe) and reduce costs.

Cost Cutting

NLOK faces one major headwind with stranded costs – i.e., the expenses attributable to the enterprise cybersecurity business that the company must incur because these could not be passed on to Broadcom. These costs are attributable to people, facilities and contracts, and are estimated at $1.3 billion.

The new management team plans to eliminate these costs in the next 12 months. However, an estimated cash cost of $900 million will have to be incurred to fully knock them out. This cash outflow will be funded from the sale of real estate and some other assets, which are expected to be sold by June 2020. Major impact on account of the stranded costs will be felt in Q3 2020.

Meanwhile, the company has decreased headcount by 8%, leading to substantial savings.

NLOK’s month-period charts are looking really good. A break above its multi-month-high of $26 can make the stock soar. Even the weekly charts look solidly bullish.

Summing Up

NortonLifeLock has done the right thing by hiving off its struggling enterprise security business, bringing a new management team to the forefront, and by kicking off the cost-cutting exercise.

The only headwind it faces is the stranded cost elimination process, which involves thorny issues like people, facilities, and contracts.

The company enjoys a healthy operating margin of 50% on its consumer business, and the new team is confident of reporting an annualized EPS of $1.50. The cash flow from operations was $181 million in Q2 2020, and the company ended the second quarter with cash and short-term investments of $1.83 billion. These are healthy numbers. Not to forget, there’s a special dividend coming up too.

In my opinion, NortonLifeLock is now a leaner and meaner Symantec, and it does seem like its story will end very well. Though the stock looks like an exciting long-term investment, you should watch how the stranded costs impact Q3 2020 numbers before diving in.

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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.

Additional disclosure: This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

This content was originally published here.

Written by: BCyber

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