NEW YORK (AP) -- Shares of SolarWinds Inc. tumbled Wednesday after the information technology company announced an acquisition that could trim its profit this year.
THE SPARK: Tuesday the company said it will buy N-able Technologies for $120 million in cash. The move will add cloud-based offerings to SolarWinds' product lineup, but also significantly reduce its profits this year, BMO Capital Markets analyst Karl Keirstead said.
THE BIG PICTURE: Austin, Texas-based SolarWinds said the addition of the Canadian company will help it better meet the needs of its managed service providers and the small businesses they serve.
N-able supplies remote cloud-based IT infrastructure management tools to more than 90,000 small businesses, sold through 2,600 managed service providers or channel customers.
THE ANALYSIS: Keirstead said that while SolarWinds needed to move into cloud-based products and the addition of N-able does boost the company's customer base, the move also will reduced its profits by about 11 cents per share this year.
In addition, the analyst wrote, "the execution risk seems high given that SolarWinds is only retaining the one-third of revenues that N-able derived from subscription deals (two-thirds were from licenses and maintenance fees)."
Keirstead, who backed his "Market Perform" rating for SolarWinds shares, cut his 2013 profit prediction for the company by 10 cents to $1.52 per share, but boosted his revenue prediction by $9 million to $337 million.
Analysts, on average, expect a profit of $1.61 per share on $333.6 million in revenue, according to FactSet.
THE SHARES: Down $6.38, or 13 percent, to $41.53 in afternoon trading, after falling as low as $41.02 earlier in the day. Over the past 52 weeks, the company's shares have traded between $39.10 and $61.52.