What happened
Shares of Symantec (GEN 0.39%) dove nearly 11% last month, according to data provided by S&P Global Market Intelligence, after the cybersecurity company delivered earnings that fell short of Wall Street's expectations and lowered its financial outlook for the year ahead.
So what
Heading into November, Symantec's stock had been riding high. Analysts expected the company to benefit tremendously from the Equifax data breach, which affected 143 million Americans. Yet Symantec reported second-quarter non-GAAP earnings per share of $0.40, which, while rising 33% year over year, came in $0.03 below analysts' estimates. Symantec's third-quarter revenue and EPS guidance also fell short of Wall Street's expectations.
Furthermore, Symantec lowered its full-year outlook. It now expects fiscal 2018 revenue of $5.0 billion to $5.1 billion -- down from a prior estimate of $5.16 billion to $5.26 billion -- and non-GAAP EPS of $1.66 to $1.76, down from $1.79 to $1.89.
Now what
Symantec's lower revenue guidance is mostly due to the sale of its website security business, which netted it $950 million in cash upon the closing of the deal in October. And as my Foolish colleague Harsh Chauhan notes, website security generated $203 million in revenue during the first six months of fiscal 2018, down from $214 million in the prior-year period. So selling this declining business will likely improve Symantec's growth metrics.
Additionally, Symantec's earnings shortfall can be chalked up mainly to increased sales and marketing expenses. Symantec wisely ramped up its advertising campaign following a string of high-profile hacks. This boosted customer enrollments for its LifeLock identity-theft protection service as much as tenfold following the Equifax breach. So while these growth investments are weighing on Symantec's earnings in the short term, they're likely to drive sales and profits substantially higher over the long term.
More hacks mean more business for Symantec. Image source: Getty Images.
Cyberattacks will probably continue to increase in number and sophistication. Symantec, with its "end-to-end" bundled cybersecurity offerings, stands ready to help consumers and businesses of all sizes protect themselves from this growing threat. That should keep its products and services in high demand for the foreseeable future. And as a leader in a global cybersecurity industry that's projected to generate sales of more than $1 trillion from 2017 to 2021, Symantec may find its recent swoon is ultimately dwarfed by far larger long-term gains. Investors may wish to use this pullback as an opportunity to pick up shares of this cybersecurity leader at a discount.
