Atlassian Corp. shares dropped nearly 30% Friday, after the business-collaboration software company’s earnings and revenue outlook fell short of Wall Street expectations and executives described signs of economic weakness taking hold.
Atlassian — known for software programs such as Jira — was worth roughly $44 billion at its closing price Thursday, so Friday’s decline represented a loss of nearly $13 billion in market capitalization, $12.86 billion to be exact. Atlassian shares had already declined 54.3% so far this year as of Thursday’s close, while the S&P 500 index SPX,
Atlassian executives forecast revenue of $835 million to $855 million for their fiscal second quarter, while analysts expected $879.3 million on average, according to FactSet. Executives also decreased their revenue guidance for the full year, without providing a specific figure for overall annual revenue; instead, they gave color in a letter to shareholders about the different revenue segments within the company.
In that letter to shareholders, Atlassian’s co-chief executives and co-founders, Mike Cannon-Brooks and Scoot Farquhar, said that the company tracked slower conversions from free to paid subscriptions for its “freemium” software, and slower growth from its paying customers in the quarter.
“The above two trends are the result of companies tightening their belts and slowing their pace of hiring. In other words, Atlassian is not immune to broader macroeconomic impacts,” they wrote. “Our outlook assumes these trends will persist, but we’ll monitor, respond and keep you updated accordingly.”
“We will focus our investments on strengthening our market position and scooping up top-tier talent in this environment. But we will balance these investments with the growth of our business and be responsive to the macroeconomic conditions,” they continued. “So while we’re lowering our revenue outlook for FY23 based on macroeconomic headwinds, we are maintaining our midteens % operating margin outlook for the year.”
Chief Financial Officer Joe Binz detailed planned cost cuts and a hiring slowdown in response during a conference call Thursday afternoon.
“First and foremost, we’re making reductions in our non-head count-driven discretionary spending,” he said in response to an analyst’s question. “And then, secondarily, we’ll be moderating the rate of planned head count growth in the second half of FY 2023.”
Executives reported a fiscal first-quarter loss of $13.7 million, or 5 cents a share, compared with a loss of $411.2 million, or $1.63 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 36 cents a share, compared with 37 cents a share in the year-ago period.
Revenue rose to $807.4 million from $614 million in the year-ago quarter. Analysts surveyed by FactSet had forecast adjusted earnings of 40 cents a share on revenue of $806.3 million.
“These results came as a bit of a shock, and are frankly something we thought we’d never see from a high-performing company like TEAM that also possesses a unique value proposition and business model,” Mizuho analysts wrote while chopping their price target on the stock to $255 from $320 but maintaining a “Buy” rating on the stock.
“Despite the big setback, we believe TEAM is likely to be one of the biggest
winners once the macro environment improves,” they wrote. “Why? Most notably, we would highlight a very strong competitive position in the important DevOps market, a still vibrant top-of-funnel (35K net new paid customers added over the LTM), a multiyear cloud migration catalyst, and meaningful pricing power as key growth drivers.”