Send me real-time posts from this site at my email

Why McAfee Stock Soared Today

What happened

Shares of cybersecurity company McAfee (NASDAQ: MCFE) soared on Monday after the company announced it's selling the enterprise side of its business to double down on the consumer side. As of 12:45 p.m. EST, McAfee stock is up 14%.

So what

McAfee's revenue in 2020 was split fairly evenly between enterprise and consumer customers. However, management has decided to focus on regular consumers by selling its enterprise business for $4 billion to the Symphony Technology Group. Considering McAfee's enterprise segment made over $1.3 billion in revenue in 2020, the transaction values its enterprise business at just under three times sales.

Image source: Getty Images.

McAfee's management has already planned out how it will spend its cash haul. It will use around $1 billion to pay down debt -- its long-term debt was almost $4 billion as of its latest quarter. About half a billion will be used to pay expenses related to the transaction. The final $2.5 billion is going to be used for a potential special dividend of $4.50 per share, which is a very large payout for a stock this size. Judging from the stock's reaction today, investors love the idea of this move.

Now what

To me, this move from McAfee is a bit of a head-scratcher. The company went public less than six months ago. I can appreciate the decision to double down on consumer-level cybersecurity. But if the opportunity is really compelling, why not invest more money into growing that side of the business instead of paying shareholders such a hefty dividend this early?

Then again, McAfee's core direct-to-consumer subscriber base grew 18% from the fourth quarter of 2019 to the fourth quarter of 2020, and its dollar-based retention rate was 100% in 2020. Those numbers are strong, suggesting the consumer business is growing just fine without the need for extra investment and affording the company the luxury of giving shareholders a big dividend. Those holding for the long term will hope that's true.

10 stocks we like better than McAfee Corp.
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and McAfee Corp. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of February 24, 2021

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue