What Happened:
Shares of IT project management software company, Atlassian (NASDAQ:TEAM) fell 5.6% in the afternoon session 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.
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? Access our full analysis report here, it's free.
What is the market telling us:
Atlassian's shares are very volatile and over the last year have had 18 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 2 months ago, when the stock dropped 15.4% on the news that the company reported second-quarter earnings results and provided a mixed outlook for the coming quarters. In a letter to shareholders, management expects more unpredictable decisions from customers migrating to the cloud following the server end-of-support in February 2024. It added, "While some of the remaining Server customers will migrate to Cloud, the majority will migrate to Data Center, and also prudently assumes that some Server customers will not migrate in FY24."
CFO Joe Binz explained further during the earnings call, "If there was any weakness in our cloud performance versus expectations, it's that paid seat expansion has been lower than we expected, and this quarter, it was slightly lower than we expected, particularly in SMB." These comments likely spooked Wall Street analysts, with Goldman Sachs analyst Kash Rangan commenting, "As weakness from small and medium-sized business weighed on growth, Altassian's cloud transition might wind up taking longer than expected."
On a more positive note, revenue and EPS exceeded expectations during the quarter. Revenue guidance for the next quarter also topped analysts' expectations. Full-year guidance was also promising, with Cloud and Data Center revenue outlook raised. Higher growth is not hurting profits, as the outlook for full-year non-GAAP operating margin was lifted as well. Overall, this was a mixed quarter, with the results likely overshadowed by worries about the slow cloud migration.
Atlassian is down 13.7% since the beginning of the year, and at $195.50 per share it is trading 24.1% 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 $1,709.
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