SolarWinds

SWI · NYSE

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The case for and against

Updated Apr 10, 2025

Bull case

SolarWinds Corp's shift towards a subscription-first strategy has resulted in subscription revenue growing to 31% of total revenue in FY23, a significant increase from approximately 17.5% in FY21, indicating strong market resonance of its platform. The company reported a year-over-year EBITDA growth of 13% reaching $96.0 million, supported by disciplined cost management and operating efficiencies, which has also fostered solid margin expansion. Additionally, SolarWinds has witnessed a substantial rise in its enterprise customer base spending over $100k annually, with a notable 18% increase, positioning the company favorably to capitalize on growing enterprise demand as IT environments increasingly transition to hybrid and cloud models.

Bear case

The analysis indicates that SolarWinds faces significant downside risks, particularly from potential damage and financial impacts stemming from cyberattacks, which could lead to prolonged weakness in earnings and cash flow, hindering the company's ability to manage its substantial ~$1 billion net debt. Compounding these concerns, SolarWinds is experiencing slower revenue growth compared to its peers, raising questions about its valuation sustainability, as current financial models may not accurately reflect the complexities introduced by an accelerated shift from license to subscription revenue. Additionally, the concentration of ownership by private equity firms could pose risks for minority shareholders, further complicating the company's financial outlook.

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