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Why SolarWinds Stock Had a Sunny Day

By Evan Niu, CFA – Aug 7, 2020 at 4:21PM

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The IT software company reported second-quarter results and said it's considering a spinoff.

What happened

Shares of SolarWinds (SWI 3.74%) had a sunny trading day, closing out the session with gains of 12% after the company reported second-quarter earnings. It also said it was exploring a potential spinoff.

So what

Revenue in the second quarter was $246 million, which translated into adjusted earnings per share of $0.25. The consensus estimates had called for sales of $246 million and adjusted earnings per share of $0.20. The information technology software company's adjusted recurring revenue was $212.9 million, consisting of $116.5 million in maintenance revenue and $96.4 million in subscription revenue.

Rising green and black stock chart

Image source: Getty Images.

"Despite evidence of ongoing budget pressures for IT pros, we continue to see a bright spot for SolarWinds and an opportunity to continue capturing market share," CEO Kevin Thompson said in a statement. "Our business was built to disrupt markets through a set of integrated products that combine affordability with ease of use."

Now what

SolarWinds is considering a potential spinoff of its managed service provider (MSP) business, which would become a newly created and publicly traded company. Management suggested that such a move could unlock shareholder value if the businesses were evaluated separately on a stand-alone basis. The company notes that it may ultimately scrap the idea, but if it moves forward, the spinoff would occur in the first quarter of 2021 or later.

In terms of guidance, revenue in the third quarter is expected to be in the range of $254 million to $259 million, with adjusted earnings per share of $0.24. Wall Street is looking for $254.9 million in sales and adjusted EPS of $0.22.

Evan Niu, CFA 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.

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