Antivirus Software Might Be Dead, But Symantec Certainly Is Not

Symantec's traditional antivirus software seems to have stagnated, in terms of growth. The company is, however, quickly introducing new, non-traditional revenue sources to its portfolio such as advanced cyber-security software and mobile-device security solutions, which should drive new growth in the company.

May 28, 2014 at 9:45AM

Symantec (NASDAQ:SYMC) is a consumer antivirus software manufacturer that is, perhaps, best known for its flagship Norton Antivirus. Sales of the company's Norton brand have stagnated in the last couple of years, a trend that prompted one of its executives to publicly declare that antivirus software is dead. But, make no mistake, the cyber-security industry is still valued at $70 billion per year.

Changing tactics
One of the chief early uses of antivirus software was to prevent hackers from intruding into IT systems. But, hackers nowadays have become so tech savvy that many manage to sneak through, whether or not antivirus software is already pre-installed. Brian Dye, Symantec's senior vice president of information security, estimates that antivirus software now only manages to catch 45% of hackers. The company also says that 2013 was the worst year in the history of cyber crime, with associated losses hitting $110 billion.

This has forced leading IT and network systems protection companies to rethink their strategies. For instance, network equipment manufacturer Juniper Networks (NYSE:JNPR) is encouraging customers to place fake data inside firewalls to distract potential hackers. FireEye (NASDAQ:FEYE) has invented a technology that scans networks for malicious-looking code that could have made it past a system's first line of defense. In January, the company acquired Mandiant for $1 billion, a small company run by a former Air Force team that acts as forensic investigators after a cyber-crime bust-up.

Turnaround
Symantec has been a bit late to the antivirus revolution party, but has recently joined the fray by creating its own team to respond to hacked businesses. The security software developer plans to sell intelligence briefings to clients so they can learn where and why they are getting hacked. Symantec is also developing a novel technology to look for advanced malicious software that resides inside networks and often goes undetected.

Symantec certainly needs a turnaround. Its revenue fell in the last two quarters, although its bottom line improved mainly as a result of cost-cutting. The company reported its fourth-quarter and full-year fiscal 2013 results on May 8, 2013, which showed that revenue during the quarter had dropped 7% to $6.67 billion, license sales fell 14%, and subscription sales dropped 6%. Full-year revenue fell 3.3% to $6.7 billion, mainly as a result of the 19% reduction in license sales. Licenses and subscriptions account for 11% and 89% of Symantec's revenue, respectively. Full-year net income improved 19% to $898 million, or $1.28 earnings per share.

Mobile security and BYOD to revive consumer security software division
Symantec's consumer security software division accounts for roughly 42% of its enterprise value. Its revenue in fiscal 2013 clocked in at $2.11 billion, or 31.5% of the company's overall revenue. The segment has largely stagnated, and its revenue in fiscal 2011 and 2012 came in at $1.95 billion and $2.10 billion, respectively.

The biggest reason for the stagnation is Symantec's limited footprint in high-growth sectors such as mobile security solutions and BYOD, or bring your own device. The rapid proliferation of smartphones has been accompanied by a huge jump in mobile payments. This has not been lost on cyber criminals, and mobile-related cyber attacks have risen dramatically in recent times. This has been exacerbated by poor security on mobile devices, with cyber criminals targeting sensitive credit card information using sophisticated techniques. Moreover, the cost per cyber crime shot up 50% in 2013.

A recent Forester survey reported that data breach security, mobile application security, mobile device security, and mobile data security are the four biggest areas that require immediate attention, as far as BYOD is concerned. Symantec has been moving quickly to ramp up its mobile and enterprise security solutions, and has introduced corporate mobile security offerings such as Mobile Security, Norton Zone, and App Center. The company has also introduced consumer mobile security offerings, such as Norton Mobile Security, which secure mobile devices against malware. With the rapid growth of mobile device adoption, this new, non-traditional segment should add a lot of value to the company's consumer security software business.

Fire Eye is a growth machine
FireEye is widely considered the leader in advanced cyber security solutions. The company's top line has been growing very rapidly, and improved 81% in the fourth quarter of fiscal 2014 to $57.3 million, and 94% year over year to $161.6 million. The company has, however, been facing the bugaboo of many rapidly growing companies -- failing to turn a profit. Its full-year net loss clocked in at $120.6 million, or $2.66 per basic diluted share.

FireEye's success in advanced cyber security solutions is concrete proof that there is a rapidly growing market here. Symantec might be late to this new line of business, but its strong brand recognition is likely to be a powerful driver once its advanced cyber security solutions start gaining traction.

Foolish bottom line
Although Symantec's traditional cyber security solutions appear to have stagnated, the company has been quickly moving in this direction, as well as creating new mobile security solutions. The security software developer should be able to leverage its strong brand to quickly gain traction in these new markets.

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Joseph Gacinga has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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