NortonLifeLock: Developments in Avast Merger and Improved Fundamentals

NortonLifeLock NASDAQ: NLOK has been on a transformative journey since its acquisition by Broadcom Inc NASDAQ: AVGO in November 2019. Broadcom rebranded the company’s consumer antivirus product segment to NortonLifeLock while retaining the Symantec brand's rights for its enterprise cloud cybersecurity solutions. The company continues to improve its top and bottom lines but is facing pressure on its stock price from the broader sell-off in tech stocks across the market. NortonLifeLock is currently down 15.57% YTD and trades 22% below the MarketBeat consensus price target. Still, there is hope for the company to make a strong recovery due to its performance and promising M&A deals in the pipeline.

NortonLifeLock’s Q4 and FY 2021 Results

NortonLifeLock had a successful Q4 and did well overall in FY 2021. The company ended with solid revenue growth and profitability. Revenue was up 10% YoY, ending on $2.8B with an operating margin of 52.7% YoY, up 300 bps. Diluted EPS also increased to $1.75, up 22% YoY. The company scored well where it matters the most in free cash flow, with it being up 38% YoY to $968M. NortonLifeLock’s CEO Vincent Pilette said that these figures reflect good progress in the company’s transformation journey, with an accelerated pace of product innovation and global expansion. Executives noted that Q4’21 marked the tenth consecutive quarter of top-line growth. A quarterly cash dividend for shareholders was also declared. The company will pay $0.125 per common share on June 22, 2022. 

In addition to posting strong earnings, the company provided optimistic guidance numbers for the rest of the year. Non-GAAP revenue is expected to be in the range of $705M to $715M, which is approximately 5 to 7% YoY growth. Non-GAAP EPS is expected to be in the range of $0.42 to $0.44. 

NortonLifeLock and Avast Merger

One of the most significant developments for NortonLifeLock is its proposed $8 billion merger with Avast, which will combine NortonLifeLock’s features of identity theft protection with Avast’s privacy features. If the merger goes ahead, it will be one of the largest of its kind between competitors in the consumer anti-virus industry as it will cater to more than 500 million customers. The deal has come under fire from Britain’s antitrust regulators in March this year. Britain's Competition and Markets Authority (CMA) said that the merger could harm competition in the marketplace and limit choices consumers have for computer virus protection. The authority has since asked the companies to submit proposals to address these anti-competition concerns. At present, the merger is in Phase 2 review with the CMA and is expected to close in mid-to-late 2022.

NortonLifeLock Technical Analysis

NortonLifeLock has experienced a violent sell-off in its stock price that started in late January when using linear regression techniques. There is a clear trend heading towards the bottom. Something of particular concern over the short-term is that there is more volume on the red candles than green, which signifies motivated selling by bears. The sell-off has caused the stock to become oversold on the RSI, so a bounce closer to the mean price of 24.27 is expected. The stock also broke below the lower standard deviation of the Bollinger Bands, which means it's more likely to recover slightly in the future. Still, this oversold bounce is unlikely to change the stock's overall trajectory given the strength of the trend and the worsening sentiment in the overall market. A further sell-off in the stock should therefore be expected.