Q3 2024 Earnings Summary
- Strong bookings growth of 4%, driven by acceleration in cross-sell into a broader portfolio, reacceleration of direct-to-consumer customer acquisition, and stable retention across brands, with strength in identity and privacy products. This bookings growth is expected to converge with revenue growth over time. , ,
- Achieved a record total customer count of 38.9 million, with sequential direct customer growth for the second quarter in a row. This expanding customer base provides significant opportunities for cross-selling and upselling, enhancing long-term growth potential. ,
- Robust partner channel with a long-term growth plan to add about $100 million of incremental partner revenue. The employee benefit pipeline is incredibly strong, with deals expected to contribute in fiscal 2025. The company is focused on operational excellence and delivering on commitments, positioning it well for future growth through partnerships. ,
- Decreasing ARPU due to mix shift towards lower-ARPU customers: Gen's overall ARPU declined sequentially, driven by a higher proportion of new customers from lower-ARPU channels like emerging markets and mobile. This mix shift may continue to pressure ARPU and revenue growth in the near term.
- Delayed revenue from Partner channels and over-optimism in deal timing: Large deals in the Employee Benefit channel slipped into fiscal year 2025, impacting near-term revenue expectations. The timing of partner deals is non-linear, and the company acknowledged being over-optimistic about closing some deals, which may affect revenue growth targets.
- Retention rate improvements are behind plan: While overall retention remained stable at 77%, progress towards the 80% long-term target is slightly behind aspirations this quarter. The company did not improve retention as much as planned, which could impact future revenue growth.
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ARPU Decline and Mix Shift
Q: Why did ARPU decline, and is this due to mix shift?
A: Management explained that the sequential decline in ARPU was driven by a mix shift toward emerging markets and lower ARPU channels where customer acquisition has been strong. They are not discounting more in each channel but are allocating marketing dollars to channels with momentum. The core online business sees ARPU expansion, and the blended ARPU decline is due to the increased proportion of customers from channels with lower ARPU. They are confident in cross-selling and upselling to these customers over time. -
Revenue vs. Bookings Growth Convergence
Q: When will revenue growth converge with bookings growth?
A: Management is proud to report bookings growth of 4% for the second quarter in a row. Cybersafety revenue, excluding legacy business lines and FX headwinds, grew 3%, which is close to bookings growth. Over time, as they continue to scale and deliver bookings growth, revenue growth is expected to converge with bookings growth. -
Employee Benefits Deals Slipping to FY25
Q: Have some employee benefits deals slipped, affecting revenue?
A: A few key deals in the employee benefits channel have slipped into fiscal year 2025 and were not included in the Q4 forecast. The pipeline remains incredibly robust, and the team is confident in the strength of this channel, but integrations can be complex, leading to timing shifts. -
Retention Rates Slightly Below Plan
Q: How are retention rates performing?
A: Retention rates were stable quarter-over-quarter and improving in key areas but were slightly below plan. Management is making progress, especially in bringing the Avast brands closer to Norton levels, and remains confident in achieving an overall retention rate of 80%. -
Capital Allocation and Share Buybacks
Q: How will you use the cash injection—any plans for share buybacks?
A: Management plans a balanced capital allocation approach, which includes accelerating debt pay-down and share buybacks. The recent $900 million cash injection is now available for deployment, and they will continue with their balanced approach in Q4. -
Pricing Strategy and Potential Increases
Q: Are you considering raising prices given inflation?
A: Pricing is strategic, and they constantly innovate and add new features, keeping prices consistent with markets. They have taken price increases aligned with the value delivered. Management focuses on cross-selling and upselling as key growth levers rather than general price increases. -
Customer Net Adds from Emerging Markets
Q: What's driving the strong customer net adds?
A: The company achieved a record sequential increase in direct customers for the second quarter in a row, driven by strong momentum internationally and in emerging markets. ARPU in emerging markets averages $35, compared to $70 in developed markets and $135 in mature markets. They are confident in their ability to cross-sell and upsell to these customers over time. -
Partner Channels and Pipeline Robustness
Q: How is the pipeline in partner channels?
A: The partner channel pipeline, including employee benefits, has never been stronger. While some deals have been delayed, the overall funnel is robust, with deals of all sizes and scales. Management remains focused on sustainable and profitable growth through these channels. -
Impact of Threat Environment on Product Roadmap
Q: How are you addressing new cybersecurity threats like AI deepfakes?
A: The company is actively using AI to combat AI-driven threats. They are shifting toward a personalized, interactive, and intuitive cybersafety companion. They launched Norton Genie to identify fake scams and are enhancing products to scan the entire spectrum of digital threats, making them more powerful against sophisticated attacks. -
Deal Linearity in Partner Channels
Q: How was deal linearity throughout the quarter?
A: Partner channels are diverse, and the timing of deals is not linear due to the complexity and diversity of partnerships. Management emphasizes operational excellence and strong partnerships, acknowledging that integrations can impact timing but remain confident in the overall strength of the pipeline.
Research analysts covering Gen Digital.