What Happened: Shares of IT project management software company, Atlassian (NASDAQ:TEAM) fell 11.9% in the morning session after the company reported first-quarter results with some challenges in the cloud business raising concerns. Management noted that paid seat expansion remained challenged due to continued softness in the SMB segment, which is in line with the trends observed in the previous quarter.
On a brighter note, Atlassian blew past analysts' billings expectations this quarter. Its revenue and operating profit also outperformed Wall Street's estimates.
Looking forward, while revenue guidance for the next quarter exceeded analysts' estimates, the company remained uncertain about the macro outlook.The cloud revenue forecast for the next quarter includes an expectation that current trends across all core growth drivers will persist into Q4 and that the rate of paid seat expansion in the SMB customer segment will remain challenged.
There was big news not related to the financials, though. Co-CEO and co-founder "Scott Farquhar has made the decision to step down as co-CEO to spend more time with his young family, improve the world via philanthropy, and help further the technology industry globally." Co-founder Mike Cannon Brookes continues to lead Atlassian as CEO. Zooming out, the quarter was very good, the guidance was fine, but the market could be reacting to the leadership change.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Atlassian? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Atlassian's shares are very volatile and over the last year have had 17 moves greater than 5%. But moves this big are very rare even for Atlassian and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 11 days ago, when the company dropped 5.6% as the major indices declined (Nasdaq down -1.70%, S&P 500 down -1.1%, Dow down -0.61%), while yields soared. Geopolitical tension heightened following reports on Saturday, April 13, 2024, that Iran launched drones and missiles at Israel, driving uncertainty about possible disruption to global trade and commerce should the tension escalate.
Also, the Census Bureau report revealed March 2024 retail sales rose 0.7% compared to the previous month (ahead of market expectations for a 0.3% increase), suggesting consumption is strong amidst recent inflation concerns.
Prior to these reports, market volatility had picked up after the March 2024 CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) report revealed inflation came in slightly hotter than expected, adding to fears that the Fed could delay rate cut plans in 2024.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Atlassian is down 20.6% since the beginning of the year, and at $179.85 per share it is trading 30.1% below its 52-week high of $257.43 from January 2024. Investors who bought $1,000 worth of Atlassian's shares 5 years ago would now be looking at an investment worth $1,663.