Canaccord Ahead Of LifeLock's Q2 Results: Warns Of 'More Questions Than Answers,' But Maintains Buy

Lifelock Inc LOCK is scheduled to report its second quarter financial results on Wednesday. Ahead of the report, Canaccord analysts Richard Davis Jr., David Hynes Jr. and Mark Belcarz preview the numbers: they expect earnings of $0.09 per share on revenue of $143.5 million. These estimates stand in line with the company’s guidance and the Street’s consensus, and imply a year-over-year earnings growth rate of 200 percent.

The experts acknowledge the importance of the company’s decision to contest the proposed FTC settlement in court and the resulting tumble in the stock price, but prefer to analyze the issue on a forward-looking basis. They have, nonetheless, trimmed their estimates to reflect the potential damage to the brand, but maintain their Buy rating on the stock – although they have reduced their price target from $23.00 to $14.00.

What To Expect From Q2

Since the implications of Lifelock’s legal problem could be substantial, the firm shaved its 2016 growth estimates to 15 percent, from about 20 percent. Their intention is to brace investors for a reduction in guidance.

The experts and investors are now expecting management to provide some color on the actual figure of the fine imposed. They note that, “If LifeLock does nothing to characterize the range of possible outcomes of the court case, it is a near certainty that the stock will decline because investors will understandably assume the worst.”

The report goes on to discuss the outlook for the stock. The analysts think the most likely scenario would include hyper volatility followed by a low volume recovery.

Finally, Davis, Hynes and Belcarz provide a look of the updated model:

• Gross member adds for the second half of the year were reduced to 250k per quarter, down 3 percent when compared to last year.
• 2H2015 revenue estimates were cut by $4.5 million. For 2016, revenue growth was reduced to 15 percent, as stated above. The cutback is based on “essentially flat C2016 gross member adds, customer churn steady at an assumed higher level (175-180k members per quarter), and a roughly $0.25 annual increase in ARPU (well below trend, which has been ~$0.15-0.20 per quarter, last quarter excluded)”
• Adjusted EBITDA margins for 2016 were boosted to 13.9 percent. The analysts explain this is based on a COA that they “have forecast to increase 16% y-o-y (to roughly $226 on average), which would be an above normal increase –other non-GAAP expense lines were kept more or less unchanged.”