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Why Is NortonLifeLock (NLOK) Down 5.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for NortonLifeLock (NLOK). Shares have lost about 5.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NortonLifeLock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

NortonLifeLock’s Q4 Earnings & Revenues Beat Estimates

NortonLifeLock reported fourth-quarter fiscal 2020 non-GAAP earnings of 26 cents per share that increased 63% year over year. The figure beat the Zacks Consensus Estimate by 36.8%. This was driven by strong execution and lower stranded costs.

Revenues declined 0.5% year over year to $614 million but beat the consensus mark of $602 million.

Quarter Details

Direct customer revenues (90% of revenues) inched up 1.5% year over year to $549 million. Partner revenues (10% of revenues) fell 4.7% on a year-over-year basis to $61 million.

Revenues from ID Analytics (2.4% of revenues) dropped 67% from the year-ago quarter to $4 million. On Jan 31, 2020, NortonLifeLock completed the sale of the ID Analytics solutions business.

Direct average revenue per user (ARPU) increased 2.7% year over year to $9.07.

Continued stabilization of direct customer count was a positive.

In fourth-quarter fiscal 2020, gross profit increased 4.9% year over year to $517 million. Gross margin expanded 490 basis points (bps) on a year-over-year basis to 84.8%.

Operating income on a non-GAAP basis rose 51.8% year over year to $255 million. Operating margin was 41.5%, up significantly from 27.2% in the year-ago quarter.

Balance Sheet

As of Apr 3, 2020,NortonLifeLock had $2.3 billion in cash and cash equivalents compared with $12.65 billion in the prior quarter. Long-term debt was$3.47 billion, down from $3.72 billion in the previous quarter.

Notably, cash outflow from operations was $1.8 billion, down significantly from an inflow of $399 million in the third quarter of fiscal 2020, reflecting large one-time payments for divestiture-related tax amounts.

NortonLifeLock returned $9 billion to investors during the quarter, including $658 million worth of repurchases. Management notes that “with $2.3 billion of cash and no debt maturities until the end of fiscal year 2022, the company is well positioned to invest in expanding its portfolio to serve the cyber safety needs of everyone.”

Guidance

For the first quarter of fiscal 2021, NortonLifeLock expects revenues between $590 million and $605 million, adjusting for an extra week ($44 million) and ID Analytics revenues ($14 million) reported in first-quarter fiscal 2020.

Management continues to expect low-single-digit bookings growth.

Moreover, non-GAAP earnings from continuing operations are expected between 18 cents and 22 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 15.85% due to these changes.

VGM Scores

At this time, NortonLifeLock has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise NortonLifeLock has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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