AI And IoT Trends Will Drive Cyber Safety

Key Takeaways

• Accelerated AI innovation, new products, and global partnerships are driving much stronger growth and higher margins than analysts currently expect.
  
• Expanding subscription revenue and partner integrations provide greater business stability, rising recurring income, and improved long-term free cash flow visibility.
  
• Intensifying competition, unproven expansion efforts, and operational risks threaten Gen Digital's growth, pricing power, and future earnings in an evolving cybersecurity landscape.

Catalysts

Engages in the provision of cyber safety solutions for or individuals, families, and small businesses.

• Analyst consensus expects mid-single-digit growth in Cyber Safety and high single-digit in Trust-Based Solutions, but current quarterly trends-such as 11 percent Cyber Safety growth and over 100 percent reported growth in Trust-Based Solutions-suggest Gen Digital could sustain much higher double-digit revenue and bookings growth, especially as accelerated AI innovation and global partnerships drive adoption.
  
• Analysts broadly agree that operational synergies and efficiencies from integrating MoneyLion will lead to strong margin expansion, but ongoing transformation of MoneyLion's model to a high-engagement subscription platform with significant zero customer acquisition cost cross-sell potential to Gen's 76 million-plus paid customers could result in structurally higher consolidated margins and customer lifetime value than currently modeled, translating into above-consensus long-term earnings growth.
  
• Gen Digital's new AI-first strategy, including the evolution of Norton Genie into a comprehensive cyber safety assistant, in-device deepfake detection, and launch of the AI-native Norton Neo browser, positions the company to set industry standards for consumer cybersecurity, enabling outsized pricing power and ARPU expansion across a growing global digital user base.
  
• The proliferation of connected devices and IoT, combined with rising cyber threats utilizing advanced AI, increases the urgency for comprehensive, endpoint-agnostic consumer security, amplifying demand for Gen Digital's expanding platform and unlocking sustained multi-year revenue tailwinds beyond current expectations.
  
• With the majority of revenues now recurring from subscriptions and the company scaling its partner and embedded marketplace channels-including large-scale OEM, ISP, and financial platform integrations-Gen Digital's revenue base is becoming more stable and less cyclical, driving greater net margin visibility and a step-change in free cash flow generation over the coming years.

Gen Digital Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Gen Digital compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Gen Digital's revenue will grow by 11.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 16.3% today to 25.3% in 3 years time.
• The bullish analysts expect earnings to reach $1.4 billion (and earnings per share of $2.31) by about August 2028, up from $643.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 27.1x on those 2028 earnings, down from 27.3x today. This future PE is lower than the current PE for the US Software industry at 37.6x.
• Analysts expect the number of shares outstanding to grow by 0.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.83%, as per the Simply Wall St company report.

Gen Digital Future Earnings Per Share Growth

Risks

• Gen Digital's core Cyber Safety Platform segment, which is heavily reliant on mature PC endpoint security products, is forecasted to maintain only mid-single-digit growth as competition from operating system-integrated security features and free, open-source tools erodes its addressable market, putting long-term pressure on revenue growth.
  
• The ongoing integration of MoneyLion and recent large-scale mergers pose execution and operational risk, with potential for lingering inefficiencies or missed synergy targets that could raise costs and compress net margins.
  
• Gen's product portfolio is at risk of commoditization as tech giants like Microsoft and Apple continue to bundle advanced security features into their platforms, reducing Gen's pricing power and threatening average revenue per user and future earnings.
  
• Rapid evolution in the threat landscape, particularly with the adoption of AI by attackers, could leave Gen at a disadvantage versus more agile, AI-native cybersecurity start-ups, risking decreased product effectiveness, reputational damage, and lower future revenues.
  
• Expansion into financial wellness and marketplace offerings through MoneyLion is unproven at scale; increased regulatory scrutiny and shifting consumer privacy expectations could lead to higher compliance costs or barriers, negatively impacting profitability and future earnings.

Valuation

• The assumed bullish price target for Gen Digital is $44.72, which represents two standard deviations above the consensus price target of $33.22. This valuation is based on what can be assumed as the expectations of Gen Digital's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $46.0, and the most bearish reporting a price target of just $25.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.5 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 27.1x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $28.27, the bullish analyst price target of $44.72 is 36.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.