Cramer's investing club: nortonlifelock's stepped-up merger with uk rival great news for shareholders

NortonLifeLock (NLOK), an Investing Club holding, reported fiscal third-quarter earnings after the bell Thursday that were in-line with analyst expectations. Revenue increased 12%

year-over-year in constant currency to $704 million, edging estimates of about $701 million. (Constant currencies help strip out fluctuations in foreign currency to provide a clearer

financial picture.) Adjusted earnings-per-share grew faster than revenue and increased 16% year-over-year to $0.44, which was one penny better than the consensus forecast, according to

FactSet. Bottom line A fine quarter for NLOK this evening, but what got our attention most was the positive update around the timing of the Avast combination. Our belief that the deal will

create value for shareholders is why we haven't booked our gains and moved on from this position. This deal is expected to accelerate the timeline of when management thinks it can

achieve $3 in annual adjusted earnings-per-share, and we believe NLOK deserves to trade higher on Thursday night's news. If you apply an undemanding 10-times multiple on a projected $3

earnings stream out a few years, then you get a $30 stock. This makes NLOK a very cheap stock that has lots of upside in a significantly under-penetrated industry. Breaking down the results

Bookings, defined as customer orders received that are expected to generate net revenues in the future, were reported at $752 million, an increase of 11% year-over-year on a constant

currency basis. Adjusted operating margins expanded 180 basis points year-over-year to 52.8%, above management's long-term-target rate of 50%. Cash flow from operations grew 13% over

the previous year to $328 million, beating estimates of $300 million. As for NortonLifeLock's customer relationships: The company ended the quarter with roughly 80 million users. The

direct customer count increased 126,000 sequentially to 23.4 million. The quarter-over-quarter growth may be modest, but it represented the ninth consecutive quarter of sequential net

customer additions. Over 60% of direct customers use the Norton 360 platform. Plenty of opportunity for international expansion remains. Direct average revenue per user (APRU) increased

$0.07 on a sequential basis to $8.87, but that's down from $9.10 one year ago. The decline year-over-year is due to the company's acquisition of Avira, which has had dilutive

effects. If you exclude Avira, ARPU would be "well above" $9, driven by higher Norton 360 adoption and successful cross-sell and upsell activities. The customer retention rate held

steady at 85%, which is a great sign of strong engagement with the product. That improves to 87% if you exclude first-year customers which typically have lower renewal rates. Company

outlook Management narrowed its fiscal-year 2022 guidance to the high end. The company now expects full year revenue to be in the range of $2.795 billion to $2.805 billion, representing

yearly growth of about 10%. This updated view is right in line with the $2.80 billion estimate. On earnings, management now sees EPS in the range of $1.73 to $1.75 compared to their original

range of $1.65 to $1.75. This updated view is right in line with the $1.74 estimate. Avast update While the broader results were mostly in line with expectations, the most important news of

the night was what management had to say about the company's pending combination with Avast. The company said they believe it is possible to accelerate the timeline of the

merger's closing date to Feb. 24 — that's three weeks. NortonLifeLock still has regulatory conditions to meet in the UK, Germany, and Spain, so there is still plenty of work to be

done, but this updated timeline is much sooner than the original expectation of a mid-2022 close. This news goes to show you how underrated this management team is. On a high level, the

combination will create the global leader in consumer cyber safety with over 500 million total users and roughly 40 million direct customers. We also believe the deal will create a ton of

value for shareholders. Between significant cost synergies, some revenue synergy opportunities, and strong free cash flow generation that can support a stepped-up buyback, Norton believes

the deal will be an accelerant to their three-to-five-year goal of achieving $3 in adjusted earnings-per-share. If unfamiliar with the transaction, we highly recommend you check out the

Investor Presentation to gain a better understanding of why this deal makes so much financial and strategic sense. (Jim Cramer's Charitable Trust is long NLOK. See here for a full list

of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before

buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

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