SolarWinds Stock is Ready to Rebound

Enterprise information technology giant SolarWinds Corporation NYSE: SWI stock has been recovering from the infamous SUPERNOVA hack disaster nearly a year ago. Shares are still trading down (-35%) on the year, which leaves more upside for patient investors. The Company is a poster child of mismanaging a cybersecurity breach and bolstered interest in cybersecurity stocks including CrowdStrike NASDAQ: CRWD, Palo Alto Networks NYSE: PANW and FireEye NASDAQ: FEYE. The Company is recovering from the PR nightmare and appears to have weathered the negative publicity as it remains out of the news headlines. The hackings have caused the Company to create and implement its “Secure by Design” initiative which seems to have helped it to win large public sector deals worldwide. Prudent investors looking to capitalize on the rebound and recovery can look for opportunistic pullbacks in shares of SolarWinds. 

Q2 2021 Earnings Release

On Aug. 3, 2021, SolarWinds released its second-quarter earnings report for the quarter ending in June 2021. The Company saw earnings-per-share (EPS) of $0.44, excluding non-recurring items, versus consensus analyst estimates of $0.39, beating by $0.05. Revenues rose 6.27% year-over-year (YoY) to $262 million beating analyst estimates for $258.4 million. Non-GAAP total recurring revenues was $235.4 million representing a 10.5% YoY growth. The Company ended the quarter with $410.6 million in cash and $1.9 billion in debt. SolarWinds CEO Sudhakar Ramakrishna commented, “I continue to be impressed by the resiliency of our business and, in particular, our employees who, through focus and dedication, helped us deliver second-quarter results above the high end of our outlook for non-GAAP total revenue and Adjusted EBITDA. We believe our commitment to customer success, transparent communication, and our ‘Secure by Design’ initiatives have put us in a strong position to continue to be a valued partner to technology professionals around the world as they continue to transform their businesses.”

Downside Guidance

The Company issued downside guidance for Q3 2021 EPS around $0.27, falling short of consensus estimates for $0.42. Revenues for Q3 2021 are coming in between $176 million to $180 million, significantly lower than the $267.97 consensus analyst estimates. Adjusted EBITDA is expected in the $70.5 million to $72 million range, which is near 40% of non-GAAP revenues.

Conference Call Takeaways

CEO Ramakrishna set the tone, “We substantially completed our investigation into the cyber incident and published our findings in May and continue to apply the learnings via our Secure by Design initiatives. I have also had the opportunity to share our findings in public forums such as the RSA, the CYBERSEC Global, and UK Cybersecurity Conferences as well as with industry peers and government authorities around the world. It is an unfortunate fact that no company, regardless of its size, competency and resources seems immune to cyber-attacks as evidenced by the recent high-profile breaches. In this environment, our pledge of transparency and industry collaboration remains strong and has been well received by customers, partners, and the broader industry as we accelerate our journey to deliver simple, powerful, and secure solutions.” He continued, “We are winning large public sector deals throughout the world. In many of these customer engagements, our Secure by Design initiative features prominently. We are seeing that the comprehensiveness of our initiative, as described earlier in my comments, and its applicability to a broad range of customer environments is a key differentiator. During the second quarter of 2021, we launched SolarWinds Database Insights for SQL Server, expanding our comprehensive database performance management portfolio. Uniting the features and functionality of the award-winning SolarWinds Database Performance Analyzer and SolarWinds SQL Sentry Database Insights for SQL Server provides the in-depth performance and environmental data teams need to optimize the performance of Microsoft SQL Server and other leading database platforms running on-premises, in the cloud, or in hybrid environments. Our products and services received more than 35 industry and customer awards in the first half of 2021. Notably, Trust Radius named nine SolarWinds IT operation management products as 2021 Top Rated award winners across 13 categories, and the company's commitment to customer support and success was honored through five Stevie Awards. We continue to attract excellent talent across all functions of our organization. People see the opportunity we have with our mission and strategy to address what we believe will be a $100 billion market opportunity. Last but not the least, we reached another significant milestone by completing the spinoff of our managed services business, now known as N-able, on July 19, 2021. By operating as two independent publicly traded companies, we believe that SolarWinds and N-able will be better positioned to align with each other's market needs and customer requirements, enhancing the successful operations of both companies in the future.”

SWI Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames enables a more precise near-term view of the price action playing field for SWI stock. The weekly rifle chart peaked at the $23.00 Fibonacci (fib) level before the collapse to the $16.56 area fib. Shares were able to base there before attempting to coil with a weekly stochastic mini pup through the 20-band. The weekly 5-period moving average (MA) is attempting to slope up at $17.89 to crossover the 15-period MA at $18.46. The weekly upper Bollinger Bands (BBs) overlap the $22.18 fib. The daily rifle chart has been in an uptrend since the daily market structure low (MSL) buy triggered above $17.57. A daily market structure high (MSH) sell triggers a breakdown below $19.31. The daily 5-period MA sits at $19.63 with a channel tightening 15-period MA down at $18.15. Prudent investors can look for opportunistic pullback levels at the $18.69 fib, $17.97 fib, $17.61 fib, $16.99 fib, $16.56 fib, $16.13 fib, and the $15.52 fib level. Upside trajectories range from the $23.00 fib upwards towards the $26.67 fib level.