Austin's SolarWinds wrestling with uncertain market following IPO

Entering the public markets is an uncertain move for companies to make at any time. When the markets are as volatile as they have been in recent weeks, the outcomes can be even more unclear.

Such has been the case for Austin-based SolarWinds, an enterprise software maker that last Friday returned to public trading. The company initially saw its share price rise more than 2 percent above its initial offering of $15 per share, but that upside has not continued.

When U.S. markets closed on Thursday, SolarWinds’ stock was still trading slightly below the initial price, meaning investors who bought shares in the IPO have, for the moment, lost money.

The shaky start for SolarWinds, according to stock market analysts, reflects an uncertain market that is impacting not only new public companies but tech stocks in general.

Since September, an IPO index fund from market research firm Renaissance Capital has dropped by more than 15 percent. The fund reflects roughly the top 80 percent of new public companies based on full market capitalization.

Public companies, especially in the high-tech industry, are experiencing a two-pronged issue, according to market analyst Sam Stovall of investment research firm CFRA. Investors are nervous about the current U.S. trade friction with countries such as China and are also worried that tech stocks that have been carrying the stock market's bullish run this year have peaked.

During the past month, the Dow Jones Industrial Average, S&P 500 Index and NASDAQ Composite Index have all dropped.

“Technology has taken one on the chin,” Stovall said. “It doesn’t seem to be company-specific right now, but because of timing.”

Founded in 1999, SolarWinds builds network and IT management software that has been used by companies such as Accenture, Chevron and defense contractor Lockheed Martin. Reuters news service reported that during the first six months of the year, SolarWinds’ revenue was up 17 percent year-over-year to $398.6 million.

The enterprise software firm had originally filed to sell 42 million shares at between $17 and $19 per share but downsized its offering to 25 million shares at $15 per share after some stockholders chose not to sell their shares.

A CFRA analysis shows many of the largest information technology stocks have been down during the past 13 weeks. Public companies that are relatable to SolarWinds, such as California’s Cornerstone OnDemand and Splunk Technology, have also seen recent stock drops.

Recent IPOs, such as Eventbrite and SurveyMonkey, have also started off slow, with analysts saying SolarWinds appears to have downsized its IPO after seeing the volatility in the market and understanding that $17 to $19 per share would be too high of an initial offer.

This is not the first time SolarWind has been a public company. SolarWind was taken private in 2015 in a $4.5 billion deal by investment firms Thoma Bravo LLC and Silver Lake Partners under what SolarWinds has said was a threat of the credit market collapse.

While the company’s initial offering was sold at a premium based on what its pricing had been before, how its stock has fared since shows that the price could have been dropped even lower, according to Kathleen Shelton Smith, co-founder and chairwoman of Renaissance Capital.

Although that option has passed, Smith said, she also thinks the company’s structure and recent performance mean that its long-term stability is favorable.

The company was reportedly still able to raise $375 million in its IPO, although its market cap as of Thursday was at about $4.49 billion, roughly the same amount the company was sold for just three years ago in the privatization deal.

“It’s a good company in a bad market,” Smith said of SolarWinds. “They have a strong business model, have strong profitability and have experienced management.”