Will Symantec’s Enterprise Security Gain from Blue Coat Buyout?

Symantec’s Enterprise Security offerings will get a boost from Blue Coat’s acquisition

Earlier in this series, we discussed the market expectation from Symantec’s (SYMC) fiscal 1Q17 earnings. We also discussed the factors that impacted the company’s Enterprise Security and Consumer Security segments.

To boost its position and to tap the increasingly competitive security market, Symantec strategically chose to acquire Blue Coat for ~$4.7 billion.

Will Symantec’s Enterprise Security Gain from Blue Coat Buyout?

Symantec has largely kept its focus on on-premises security. Blue Coat, on the other hand, is focused on the web and cloud security space. Its technology is being used by more than 15,000 companies to block dangerous or inappropriate websites.

With Blue Coat under its umbrella, Symantec’s Enterprise Security segment will get a boost. It can now offer a comprehensive enterprise suite of offerings for email, cloud, endpoint, and network security.

As a result, through Blue Coat, the Enterprise Security business share in Symantec’s overall revenues is expected to increase to 62%. It was close to 53% in fiscal 2016.

In fiscal 2016, Symantec’s Enterprise Security revenues fell by 7% to ~$1.9 billion. Endpoint Protection and DLP (Data Loss Prevention) are the fastest-growing subsegments of the company’s Enterprise Security Software business. A fall in DLP impacted Symantec’s Enterprise Security segment.

Cloud Security segment spending set to outpace spending on on-premise offerings

According to Morgan Stanley (MS) and Gartner estimates, cloud security is set to outpace on-premises growth. In the next four-year timeframe, the Cloud Security segment is expected to grow at a CAGR[1. compound annual growth rate] of 19% as compared to 3% growth expected for on-premise solutions.

This could be the rationale behind Cisco’s (CSCO) acquisition of cloud security company CloudLock for $293 million. In its press release, Cisco stated that CloudLock will enhance its “security portfolio and build on Cisco’s Security Everywhere strategy, designed to provide protection from the cloud to the network to the endpoint.”

Cisco has announced various cloud-related acquisitions, namely CliQr, Jasper Technologies, Lancope, Alcano and, most recently, CloudLock. These acquisitions indicate Cisco’s growing preference toward rapidly growing areas of subscription, data analytics, and cloud. It also means that we will see many more strategic acquisitions in this space.

Investors who want to gain exposure to Symantec can consider investing in the PowerShares QQQ ETF (QQQ). QQQ has an exposure of ~27% to application software. It invests ~0.3% of its holdings in Symantec.