Symantec (SYMC) fell more than 12% in Friday trading after the company missed March quarter revenue and billings estimates, issued weak June quarter and fiscal 2020 (it ends in March 2020) guidance and announced that CEO Greg Clark has resigned. Rick Hill, a board member and the former CEO of chip equipment maker Novellus Systems, will serve as interim CEO while Symantec looks for Hill's permanent replacement.
It's hard to put a positive spin on the numbers that Symantec just shared. Non-GAAP revenue fell 2% annually in the March quarter, with the company noting on its earnings call that software license and hardware sales were soft. Enterprise security billings fell 24% to $712 million, and "consumer cyber safety" billings -- tied to Symantec's Norton antivirus software unit and its LifeLock identity-protection services unit -- fell 6% to $620 million.
And at the midpoints of Symantec's guidance ranges, the company is forecasting revenue will be up just 2% in the June quarter and 1% in fiscal 2020.
For comparison, research firm IDC forecast in March -- following a strong start to the year for many security tech players -- that global IT security spending will rise 9.4% this year to $103.1 billion. IDC also forecast security IT spend will grow at a 9.2% compound annual rate from 2018 to 2022.
As I mentioned a year ago after Symantec tumbled following a disappointing March quarter report and news of an audit committee probe (it was finished in September), the company's top-line challenges appear to run pretty deep. The company is clearly losing share across numerous businesses as it deals with a long list of hungry rivals, many of which are focused on a more limited set of products and services and are demonstrating better sales execution. This list of rivals runs the gamut from well-financed startups, and publicly-traded security pure-plays such as Zscaler (ZS) , Palo Alto Networks (PANW) and Proofpoint (PFPT) , to the security units of IT giants such as Cisco Systems (CSCO) and IBM (IBM) .
At first glance, Symantec's multiples look reasonable relative to those of many peers: The company's enterprise value (market cap plus net debt) is equal to about 14 times its expected fiscal 2020 free cash flow (FCF), and less than 12 times its expected fiscal 2021 FCF.
But there are clearly good reasons why Symantec is given such a valuation discount, and with the company having done little as of late to dispel top-line worries, and now in the midst of a CEO search, it wouldn't be surprising to see its estimates taken down further.
As a result, until Symantec can show major signs of halting its recent share losses, its stock looks like a value trap.