SolarWinds: Undervalued Investment On The Rebound

SolarWinds: Undervalued Investment On The Rebound


SolarWinds Corporation has a large market share in a high-growth industry.

A cyberattack in 2020 caused ongoing disruptions and permanent expenses.

The wide geographic distribution of SolarWinds’ operations is proving burdensome due to high currency conversion rates.

The company enjoys a degree of financial stability due to its subscription-based, recurring revenue model.

BalkansCat/iStock Editorial via Getty Images SolarWinds (NYSE: SWI ) is a software company that delivers intuitive (IT) solutions to a range of businesses and organizations. Its products serve the entire spectrum of IT needs, including security, communications, digitization, and database management. SolarWinds has an enormous market share, providing subscription-based services to virtually every major corporation and government agency in the United States.

SolarWinds faced a serious blow to its operations and reputation in 2020, primarily due to a large-scale cyberattack that exploited vulnerabilities in the company’s leading product. While the market value of SolarWinds has not recovered as of March 2022, the company is carrying out a remediation strategy to achieve profitable growth in the medium-to-long term. SolarWinds has displayed competent resilience despite setbacks by learning from past mistakes, investing in international markets, and developing better products. The company is having difficulty balancing growth and profit, so lucrative returns may only materialize if or when the new management’s growth strategies bear fruit. Even though the market valuation for SolarWinds is at historic lows, the public can be persuaded by healthy quarterly performance. SolarWinds investors may want to hold onto the stock, especially if they entered at a low price, whereas prospective investors might find it wise to wait for good news at the next quarterly earnings call in June 2022. Industry Analysis The IT industry as a whole is projected to continue growing at a rapid pace, especially with the normalization of remote work. The IT subsector that SolarWinds belongs to, Software as a Service (SaaS), is projected to grow 27.5% (CAGR) until 2028. Much of the growth is predicated on the trend of digitization that’s enveloping every industry. Instead of building original software, most organizations prefer to subscribe to a SaaS or Platform as a Service (PAAS), allowing them to migrate operations to the cloud and facilitate remote work cost-effectively.

Caught in the same trend, IT companies are opting to outsource functions to international contractors, leveraging the persistent culture of remote contracting and work-from-home (WFH) while benefiting from currency disparities and saving money on personnel costs. COVID-19 Impact

COVID-19 had a positive impact on the SaaS industry as a whole. The lockdowns forced virtually every organization in the U.S. and the world to digitize operations, creating higher demand for SolarWinds’ products and more costs. The Covid-19 pandemic created unprecedented opportunities for cyber-crime, forcing the company to increase its security budget significantly. Additionally, to capture the unexpected demand, SolarWinds is incurring costs on marketing and expansion to capture the unexpected demand.

Prior to the pandemic, it was mainly large organizations using SaaS products. After adopting remote work, small and medium enterprises (SMEs) require scaled-down and affordable products. To respond to the new class of target customers, SolarWinds upped its expenditure on product development. They renewed product offerings to include cheap, individual solutions as opposed to expensive, all-in-one packages. Risks and Mitigants

As an IT company, SolarWinds is exposed to the risk of hacks and security breaches. Because the company’s software acts as a medium of intra- and inter-organizational communications, monitoring, and security, it is a glowing target for malicious entities trying to steal sensitive information. Throughout 2020, the company’s “Orion” software was breached and leaking client data to a hostile foreign government.

SolarWinds’ significant market share in the United States and its SaaS subscription model turned the company into a central point of failure, leaving it susceptible to supply chain hacks. The 2020 cyberattack negatively affected the reputation and financial health of the company. The full extent of the breach is still not clear and continues to be revealed. In Fiscal Year 2021 (FY21), as a result of the cyberattack, SolarWinds’ one-time expenses amounted to almost $50 million.

The company had to pay for legal and other professional services and provide free consultations to its affected customers. SolarWinds released a “Secure By Design” initiative to earn back the market’s trust, aiming to reinforce vulnerabilities at every phase of development and function. “Secure By Design” is a permanent initiative that will cost around $20 million annually. Product Overview

SolarWinds utilizes a novel marketing strategy that it calls “selling from the inside.” Its products are designed and marketed to be sold […]

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