Deutsche Bank Downgrades Solar Winds On 'Little Visibility'

In a report published Friday, Deutsche Bank analyst Karl Keirstead downgraded the rating on SolarWinds, Inc. SWI from Buy to Hold, while lowering the price target from $60 to $45, based on there being "too little visibility" into the reasons for the 2Q15 miss.

The company reported its total revenues for 2Q15 significantly below the consensus, while lowering its revenue guidance for 2015. However, the operating margins and EPS beat the Street forecasts, while the midpoint of the 2015 EPS guidance range was in-line with the estimates.

"This is the second weak qtr in a row and we have too little visibility into the cause of the miss and the recovery path," Keirstead stated.

The company explained that the slowdown in license was witnessed in the core sysman and netman products in the EMEA and North America. SolarWinds also attributed the miss to the underperformance of its online marketing campaign tool, which failed to convert prospective customers and generate quality "demand capture."

"SWI admits that it recognized this shortfall too late. To address the license shortfall, SWI has hired new digital marketing execs and new sales leaders and is reorganizing product management and has said that license sales should recover by 4Q15," according to the Deutsche Bank report.

Following 3-4 quarters of recovery, the company has again guided to weak growth for the next 2-3 quarters before recovery can be achieved again. The analyst expressed concern regarding the impact of this announcement on the stock.