SolarWinds Inc (NYSE:SWI) dropped like a rock at the start of today’s trading session, and has yet to meaningfully break back up after announcing lower-than-expected second quarter results yesterday. The enterprise technology company released earnings per share of $0.52, surpassing the markets’ estimate by $0.06 for the period. However, its revenue came in lower at $119.07 million, missing Wall Streets’ expectations by $3.55 million. SolarWinds Inc (NYSE:SWI) reported growth of 17.3% in its revenue in comparison with the same quarter last year, whereas its earnings were up by 14.7%.
SolarWinds Inc updated its guidance for the current fiscal year as well, with the enterprise technology company expecting annual revenues of $502.0 million to $512.0 million compared to previous guidance of $512.0 to $527.0 million. The technology company improved its earnings guidance for the year on the other hand, to between $2.00 and $2.08 against prior estimates of $1.92 to $2.04. Nonetheless, the lower revenues and revenue guidance hasn’t been received very well by analysts, with big names including Deutsche Bank and Baird lowering their ratings to “Hold” along with lowered price targets. That has sent SolarWinds’ shares down by over 22% in afternoon trading.
While discussing the quarterly results, Kevin Thompson, CEO and President of SolarWinds, said, “During the second quarter of 2015 several areas of our business performed well including our MSP and Cloud businesses, license sales in our US Federal and Asia-Pacific businesses, our installed base teams’ sales efforts and our customer retention rates. In addition, we exceeded our margin and profit outlook and generated record cash flow from operations given the strength of our unique business model.”
The shares of SolarWinds Inc (NYSE:SWI) have now declined by 26.73% year-to-date following the latest setback. Smart money had a bearish outlook of the company during the first quarter, with 24 hedge fund managers investing $589.94 million in the company against previous holdings of $685.74 million from 28 hedge fund investors. The pull out of $100 million in capital was despite shares appreciating slightly during the first quarter, showing that for many hedge fund managers, a price target had been reached, and they anticipated little growth ahead, at least short term. Shares are down by over 28% since then.
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The insiders at SolarWinds Inc (NYSE:SWI) have aligned their views with the smart money. Insiders of the company have made at least 17 sales in 2015, with Mr. Thompson selling 90,000 shares during this period. He made the largest sale on May 14, selling 45,000 shares of the company at a price of $48.57 per share, nearly $12 higher than their current level.
Let’s analyze the recent hedge fund movement in SolarWinds now to see how the smart money has been trading it.
How have hedgies been trading SolarWinds Inc (NYSE:SWI)?
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long in this stock, a decrease of 4 from one quarter earlier. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially.
When looking at the hedgies followed by Insider Monkey, Lee Ainslie‘s Maverick Capital had the biggest position in SolarWinds Inc (NYSE:SWI), worth close to $131.3 million in 2.56 million shares, corresponding to 2.1% of its total 13F portfolio. Coming in second was SRS Investment Management, led by Karthik Sarma, holding a $123 million position of 2.40 million shares; 4.9% of its 13F portfolio was allocated to the stock. More hedgies that hold long positions consist of Stephen Mandel’s Lone Pine Capital, Jim Simons’ Renaissance Technologies, and Glenn J. Krevlin’s Glenhill Advisors.
Seeing as SolarWinds Inc (NYSE:SWI) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers that slashed their entire stakes in the first quarter. Intriguingly, Michael Doheny’s Freshford Capital Management dumped the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $29.8 million in stock. Eric Bannasch‘s fund, Cadian Capital, also cut its holding loose, about $13.5 million worth of shares. These bearish behaviors are important to note, as total hedge fund interest fell by four funds in the first quarter.
Considering the negative hedge fund sentiment coupled with lower annual guidance and lower-than-expected quarterly results, we don’t recommend buying SolarWinds at this time.
Disclosure: None
