Why Symantec Foresees Weakness Despite Strong Q4 Results

Symantec in Q4

Symantec (SYMC) reported strong fiscal fourth-quarter results, surpassing analysts’ top- and bottom-line estimates as well as its own guidance. Its revenue and earnings rose significantly YoY (year-over-year).

An increase in cross-selling in Symantec’s Enterprise Security segment and the successful integration of its sales team led to the company winning deals worth more than $5 million in the quarter. Its shift to a more ratable model has also boosted revenue by improving its predictability.

Why Symantec Foresees Weakness Despite Strong Q4 Results

Weak guidance

Despite robust fourth-quarter results, the company foresees soft revenue in future years. In fiscal 2019, Symantec expects non-GAAP (generally accepted accounting principles) revenue of $4.8 billion–$4.9 billion ($4.83 billion at the midpoint). The guidance was weaker than its fiscal 2018 revenue of $5.0 billion. The company also expects a non-GAAP operating margin of 30%–32% in fiscal 2019, narrower than its adjusted operating margin of 34.7% in fiscal 2018. It expects its adjusted EPS (earnings per share) to fall YoY to $1.50–$1.65 from $1.69.

The company expects its Enterprise Security revenue to decline YoY due to less of its business yielding in-period revenue, longer contracts, and maintenance renewal timing. As a result, the company expects to focus more on implied billings and contract duration in fiscal 2019.

Tensions related to internal audit

Investors are also skeptical about the company’s near-term prospects due to its internal investigation related to disclosure, which we discussed in Part 1.