Equifax's (NYSE:EFX) data breach disaster, which potentially exposed the personal data of 143 million consumers in the U.S., seems to be getting worse each day. The credit reporting firm only disclosed the breach in early September, admitting that it was hacked from mid-May through the end of July.
Stock sales from three executives prior to the announcement raised eyebrows, a criminal probe was launched, and many analysts called for CEO Richard Smith's resignation. But the subsequent revelations were even more shocking -- it had hired a music major as its chief security officer, used "admin" as a login and password for a major database, and sent its customers to a fake phishing site for nearly two weeks.
This ongoing disaster caused Equifax shares to shed nearly a third of their value this month, and the pain probably won't end anytime soon. But one company's pain is usually another company's gain -- and the likely winner from this debacle is cybersecurity giant Symantec (NASDAQ:NLOK).
What does Symantec do?
To understand why Symantec has become an ideal anti-Equifax play, we should first discuss what the company actually does. Symantec is best known as the maker of Norton Antivirus, but its antivirus sales have fallen over the past few years due to competition from free alternatives and tougher cyberattacks that circumvent traditional antivirus software.
Symantec responded to that slowdown by expanding its offering, which mainly protects PCs, data centers, and emails, in the enterprise market. It did this with two big acquisitions -- Blue Coat and LifeLock.
Buying Blue Coat for $4.7 billion added protection for networks and cloud services. LifeLock, which it acquired for $2.3 billion, added identity theft protection services for the enterprise and consumer markets. The addition of these businesses allowed Symantec to sell end-to-end enterprise packages which shielded a wide range of platforms that typically required multiple security vendors.
Why Equifax's pain is Symantec's gain
Shortly after Equifax's announcement, Symantec executive Fran Rosch told Bloomberg that LifeLock started experiencing six times as much web traffic and ten times as many customer enrollments per hour. Rosch claimed that within the first week, LifeLock added 100,000 new members, with most "paying the full price, rather than discounts." The service had about 4.5 million members when Symantec closed the acquisition in February.
LifeLock plans to launch a television ad campaign highlighting the Equifax breach soon. It also purchased internet search terms associated with Equifax, which refer people looking for information on the hack to LifeLock's website. These timely marketing moves could help LifeLock bring in new subscribers as more details about the data breach emerge.
How much does LifeLock matter to Symantec?
Symantec doesn't disclose exactly how much revenue LifeLock generates. However, LifeLock announced, prior to the deal closing, that it would generate about $668 million in revenues in fiscal 2016, representing 14% growth from 2015 and equivalent to 16% of Symantec's revenues in fiscal 2017 (which ended on March 31).
We should also remember that Symantec closed its acquisition of BlueCoat last August. Blue Coat generated $598 million in revenues in fiscal 2016, representing a 5% loss from the previous year due to write-downs related to its prior acquisition by Bain Capital.
Analysts expect Symantec's revenues for the current year, lifted by its first full year of LifeLock and Blue Coat revenues, to rise 25%. Its earnings are expected to improve 53% as the integration of LifeLock and Blue Coat generate cost-saving synergies. After year-over-year comparisons normalize, analysts expect Symantec's revenue and earnings to respectively rise 5% and 13% in fiscal 2019.
Based on LifeLock's monthly rates of $9.99 to $29.99, we can estimate that "100,000" new members added in the week following the breach give LifeLock an additional $1 million to $3 million in revenues per month -- or $12 million to $36 million in annual revenues.
That figure looks tiny compared to Symantec's projected revenues of $5.2 billion this year, but they could be conservative if LifeLock can continue to sign up just half that many customers on a weekly basis. LifeLock sign-ups could also cast a halo effect on Symantec's other products, which could be offered in attractive bundles.
The key takeaways
Symantec already rallied 40% this year on rising demand for cybersecurity services. But the Equifax breach indicates that there's still much work to be done, and Symantec's evolution into an end-to-end enterprise solutions provider puts it in a strong position to counter these incoming threats.