What happened
Shares of cybersecurity company McAfee (MCFE +0.00%) soared on Monday after the company announced it's selling the enterprise side of its business to double down on the consumer side. As of 12:45 p.m. EST, McAfee stock is up 14%.
So what
McAfee's revenue in 2020 was split fairly evenly between enterprise and consumer customers. However, management has decided to focus on regular consumers by selling its enterprise business for $4 billion to the Symphony Technology Group. Considering McAfee's enterprise segment made over $1.3 billion in revenue in 2020, the transaction values its enterprise business at just under three times sales.
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McAfee's management has already planned out how it will spend its cash haul. It will use around $1 billion to pay down debt -- its long-term debt was almost $4 billion as of its latest quarter. About half a billion will be used to pay expenses related to the transaction. The final $2.5 billion is going to be used for a potential special dividend of $4.50 per share, which is a very large payout for a stock this size. Judging from the stock's reaction today, investors love the idea of this move.
Now what
To me, this move from McAfee is a bit of a head-scratcher. The company went public less than six months ago. I can appreciate the decision to double down on consumer-level cybersecurity. But if the opportunity is really compelling, why not invest more money into growing that side of the business instead of paying shareholders such a hefty dividend this early?
Then again, McAfee's core direct-to-consumer subscriber base grew 18% from the fourth quarter of 2019 to the fourth quarter of 2020, and its dollar-based retention rate was 100% in 2020. Those numbers are strong, suggesting the consumer business is growing just fine without the need for extra investment and affording the company the luxury of giving shareholders a big dividend. Those holding for the long term will hope that's true.
