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Tags: SolarWinds | tech | growth | SWI

SolarWinds Offers Tech Growth Play

Friday, 04 November 2011 11:53 AM

With the latest offerings from network infrastructure management and monitoring company SolarWinds (SWI), business and government entities might no longer need to spend upward of $100,000 on software applications to manage and monitor their computer networks.

SolarWinds designs, develops, and supports powerful yet easy-to-use enterprise IT infrastructure management software for IT professionals in organizations of all sizes.

The company’s offerings range from individual software tools to comprehensive products that help IT professionals effectively and efficiently manage key elements of their computer infrastructure, including networks, applications, storage, and physical and virtual servers. Those products include:
  • Free tools: Desktop, laptop or server-based applications designed for use by individual IT professionals, and typically focused on a single network or infrastructure management task or technology. The company uses its free tools to drive awareness of its brand and its paid products within the broader IT management community and to expand and build loyalty among the company’s customers.
  • Tools for network engineers: Applications for individual IT professionals who need specific solutions for routine but complicated tasks. The company prices its tools for engineers at levels at which individual IT professionals tend to have the authority to purchase those tools without the need to gain approval from upper management.
  • Entry-level monitoring products: IT infrastructure monitoring tools designed for IT professionals who need only basic network infrastructure monitoring functionality and who prioritize simplicity and affordability above other features. The company’s entry-level monitoring product, ipMonitor, is a server-based network, server and application monitoring system that features a simple installation and configuration process, basic web interface and an intuitive operations console for displaying the up/down status of IT resources. That product provides monitoring for network devices, servers and common applications such as Microsoft Exchange, Active Directory and SQL Server and includes a built-in database and web server.
  • Enterprise-class IT management products: Products that are used to monitor and report on network equipment, physical and virtual servers, applications and storage to determine the overall health and performance of IT infrastructures and to automate the processes of change, compliance and inventory. Those products provide advanced IT management functionality and are capable of scaling from simple network environments to complex infrastructures.
SolarWinds’s software can be downloaded directly from the company’s website and installed and configured by its end-users in only a few hours. The products, which are easy to install, feature intuitive and easily customized user interfaces and built-in workflows.


The company’s marketing efforts are based largely on the free software tools that it offers to IT professionals via the company’s website and on an online community web site that SolarWinds hosts at http://thwack.solarwinds.com. That community site provides a forum whereby IT professionals can research and learn about a variety of computer network issues and ways to resolve problems encountered in managing networks. Persons who use the company’s Thwack site are often able to resolve technical issues without the need to contact SolarWinds support representatives, thereby reducing the company’s customer support expenses.

SolarWinds also enables IT professionals to determine the value of its products before they purchase those products by offering prospective buyers the opportunity to download and evaluate free copies of its software applications.

As a result of the large volume of qualified sales leads that SolarWinds drives to its websites via key Internet search words, the company’s inside sales force has, historically, been able to convert those leads into paying customers at a level of productivity per sales representative that is much higher than is typically achieved with a traditional direct sales force. That marketing model has enabled SolarWinds to offer its products at prices that are typically lower than competing applications and to support rapid growth in its business while maintaining high profit margins.

Financial considerations

SolarWinds grew its revenues and earnings at very fast rates over the past five years, with its revenues rising to $75.6 million for the year ended Dec. 31, 2010, from $23.7 million for the year ended Dec. 31, 2006. During that same period, the company’s net earnings rose to 61 cents per diluted share from 18 cents per diluted share.

During the past two quarters, SolarWinds continued to grow its revenues and earnings at fast rates, with its net earnings per diluted share rising 65 percent and 80 percent during the quarters ended Sept. 30, 2011 and June 30, 2011, respectively, on revenue increases of 31 percent and 29 percent, respectively, during those quarters.

Looking forward, SolarWinds expects its adjusted earnings per diluted share to rise at a year-over-year rate of at least 35 percent during the quarter ending Dec. 31, 2011 on a revenue increase of at least 27 percent.

Meanwhile, the company is very strong financially, with its cash alone equal to 1.5 times the company’s total financial obligations as of Sept. 30, 2011 and the company’s long-term debt equal to a mere 2.3 percent of its total tangible assets.

In addition to that strong financial condition and the company’s rapidly growing revenues and earnings, SolarWinds consistently grew its cash flows from operating activities during each of the past five years.

The company has, historically, used its excess cash to acquire companies that offer synergistic products. For example, SolarWinds acquired Hyper9, a provider of virtualization management software, including capacity planning, configuration, and chargeback reporting for virtualized server environments, on Jan. 19, 2011.

More recently, the company announced on July 13 of this year that it had acquired TriGeo, a provider of log and event management software, for $35 million in cash.

This past Tuesday, SolarWinds announced that it is expanding its presence in the Japanese market by creating a Japanese language web site, the translation and localization of its products, and creating a dedicated, native Japanese-speaking support team based in Brisbane, Australia. In addition, the company announced that it will enter into partnerships with Japanese companies, including Marubeni Information Systems, to promote and sell its unique IT management applications to Japanese customers.

In spite of the favorable factors and developments mentioned in this article, SolarWinds’s stock appears to be trading at a fair price, with a price-to-earnings-growth (PEG) ratio of only 1.3 as of Nov. 3.

Although that PEG ratio is a bit higher than my preference, it’s still quite low for a rapidly-growing technology company. Therefore, I would encourage stock market speculators and aggressive investors to take a closer look at this company and its stock.

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With the latest offerings from network infrastructure management and monitoring company SolarWinds (SWI), business and government entities might no longer need to spend upward of $100,000 on software applications to manage and monitor their computer networks. SolarWinds...
Friday, 04 November 2011 11:53 AM
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