By Manikandan Raman: Subscribe to Manikandan's RSS feed
August 4, 2010 8:37 AM EDT
Business software maker SolarWinds is all set to benefit from strong demand for network management softwares.
Texas-based SolarWinds helps IT professionals improve network management without burning holes in their wallets. The company provides fault and performance management, configuration management and compliance, and troubleshooting applications.
The demand for these kind of services will only grow in coming years as companies and individuals are beginning to spend more on network expansion.
Increasing demand from enterprise users for better network and application performance and quality in the face of higher levels of complexity augurs well for the company.
According to Gartner, worldwide software revenue for managing networks and the availability and performance of networks and systems will grow from $4.78 billion in 2009 to $5.70 billion in 2013, representing a growth of 4.4 percent a year.
"SolarWinds is well-positioned to grow much faster than the market primarily because it can offer an affordable and easy-to-use solution that lowers total cost of ownership and increases return on investment for the customer, in our view," ThinkEquity analyst Jonathan Ruykhaver said in a note to clients.
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Designed to work on single devices or networks with as many as 100,000 machines, its downloadable software can be installed and configured without professional implementation services.
Analyst Ruykhaver, who initiated coverage of the stock with a "Buy" rating, said one of the primary advantages of the SolarWinds business model is the recurring revenue nature of its transactions.
"With an average selling price of 10-15% of its larger competitors, SolarWinds is able to extract a higher percentage of maintenance revenue from every deal, resulting in a predictable revenue stream," analyst Ruykhaver said.
"Based on our discussions with customers, we believe that, with SolarWinds, an IT professional can solve a pressing network problem while minimizing the time it takes to evaluate, install, and maintain the product," Ruykhaver added.
The most significant risks for the company include the long-term viability of the online sales model, renewed macroeconomic weakness, and intense competition from well-funded players like CA, HP and IBM.
SolarWinds, which went public in 2009, counts Booz Allen Hamilton, FedEx, Lockheed Martin, Microsoft, and NASA among its customers.
On August 2, the company said it is buying back up to $25 million worth in company shares and reported second quarter earnings of $8.8 million profit on $35.5 million revenue.
Shares of SolarWinds closed Tuesday's regular trading at $14.99 on the NYSE.
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