Why SolarWinds Stock Tanked More Than 40% Today

Editor’s note: This article has been corrected to state that SolarWinds originally announced it was exploring a separation of N-able last August. 

What happened

Shares of SolarWinds (NYSE:SWI) are down more than 41% as of 11:10 a.m. EDT, according to data from S&P Global Market Intelligence. The embattled tech company completed its spinoff of IT service software outfit N-able (NYSE:NABL) into its own separate entity. The big share price drop reflects the split. SolarWinds shareholders of record on July 12, 2021 each received one share of N-able — which is currently trading at $14 per share, down nearly 9% as of 11:10 a.m. EDT from its debut at market open on Tuesday.  

A faceless person wearing a hooded sweatshirt using a laptop, representing cybercrim.

Image source: Getty Images.

So what

SolarWinds originally announced it was exploring a separation of N-able last August, and filed paperwork with the Securities and Exchange Commission (SEC) last December making the spinoff official. Later in December, it was revealed by security firm FireEye (NASDAQ:FEYE) that a breach on its systems was exploited through SolarWinds IT monitoring and management software Orion — which FireEye and a slew of other tech companies and government agencies use, and through which Russian hackers had infiltrated their systems.

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It’s been tough going for SolarWinds ever since. Its stock fell over 30% when news of the hack broke, and a meaningful rebound has yet to occur. Spinning off N-able will allow that growing cloud-based software business to divorce itself from the beleaguered IT management services that will remain under the SolarWinds name. 

Now what

SolarWinds reported preliminary second-quarter 2021 financial results in July. Total revenue is expected to be up approximately 6% year-over-year to $260.8 million to $262 million, but about $85 million of that revenue was generated by N-able (which grew 16% year over year). The core business that remains with SolarWinds was up a meager 2%.  

It will be an uphill battle for SolarWinds as it repairs its reputation and reestablishes trust with its customers, and it’s unlikely to be a growing business anytime soon. The upshot, though, is that this is a profitable firm. Adjusted EBITDA profit margin, which excludes noncash expenses like depreciation and one-time costs of completing the spinoff, is expected to be about 42% in Q2. SolarWinds might be a potential rebound play going forward, but tread lightly here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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View more information: https://www.fool.com/investing/2021/07/20/why-solarwinds-stock-tanked-more-than-40-today/

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