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Why Is NortonLifeLock (NLOK) Down 12.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for NortonLifeLock (NLOK - Free Report) . Shares have lost about 12.5% 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 its most recent earnings report in order to get a better handle on the important catalysts.

NortonLifeLock's Q2 Earnings Double, Beat Estimates

NortonLifeLock’s reported second-quarter fiscal 2021 non-GAAP earnings doubled to 36 cents per share from the year-ago quarter’s 18 cents. The earnings figure beat the Zacks Consensus Estimate of 33 cents as well.

Revenues of $626 million also surpassed the consensus mark of $621.1 million and marked a year-over-year improvement of 5%. This outperformance was mainly driven by strong execution, favorable foreign currency exchange rates and the removal of the company’s final stranded costs.

Quarter Details

Direct average revenue per user (ARPU) increased 2% year over year to $9.10 per month. Continued stabilization of direct customer count was a positive. The company added 117,000 customers during the fiscal second quarter, bringing the total count to 20.7 million.

In the reported quarter, gross profit climbed 5.9% year over year to $536 million. Moreover, gross margin expanded 160 basis points (bps) on a year-over-year basis to 85.6%.

Operating income on a non-GAAP basis jumped 71.6% year over year to $314 million. Operating margin was 50.2%, up significantly from the year-ago quarter’s 30.1%.

Balance Sheet

As of Oct 2, 2020, NortonLifeLock had $1.05 billion in cash and cash equivalents compared with the prior quarter’s $1.1 billion. Long-term debt was $3.56 billion, down from the $2.84 billion witnessed in the previous quarter.

The company uses cash of $113 million for operational activities. During the first six months of fiscal 2021, the company generated an operating cash flow of $57 million.

Guidance

For the third quarter of fiscal 2021, NortonLifeLock projects revenues between $625 million and $635 million, suggesting 4-5% growth adjusting for ID Analytics revenues ($15 million).

Moreover, non-GAAP earnings from continuing operations are expected between 36 cents and 38 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 6.44% due to these changes.

VGM Scores

Currently, NortonLifeLock has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, NortonLifeLock has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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