Software stocks Atlassian, Twilio, Cloudflare take a beating on guidance

Investors beat software stocks Atlasian (TEAM), Twilio (TWLO) and Cloudflare (NET) Friday to provide weak guidance.

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TEAM shares plunged nearly 30% to 121.96 in morning trading on the stock market today. TWLO stock fell 34.8% to 42.60. Meanwhile, Cloudflare shares fell 17.2% to 41.70.

Atlassian reported fiscal first-quarter earnings of 36 cents, down 3% from a year earlier, missing Wall Street estimates for 38-cent profit. Revenue rose 31% to $807.4 million, up from $806.4 million.

Billings, a sales growth metric, came in at $798 million, up 27%. But it missed forecasts by $830 million.

The Australia-based company said it expects December quarter revenue of $845 million at the midpoint of its outlook, below views for $879 million.

“We are surprised by the extent of the decline in consolidated growth and cloud growth more specifically,” BMO Capital Markets analyst Keith Bachman said in a note to clients.

Software stocks move to the cloud

“Management lowered fiscal 2023 cloud revenue guidance from 50% year-over-year to a range of 40% to 45%, driven by a more pronounced decline in the rate of free-to-paid conversions,” Bachman continued. “(They also cited) a slowdown in the growth of paid users from existing customers as customers slow hiring.”

Atlassian said it expects December revenue of $845 million in the middle of its outlook. That’s up 23%, but below analysts’ estimates of $879 million.

Founded in Sydney in 2002, Atlassian sells project management and collaboration software for software developers and IT engineering teams.

The software maker is transitioning to a cloud computing business model. Atlassian is phasing out the sale of on-premise software used in the data centers to corporate customers.

TWLO Stock: Crypto, Consumer Weakness

Meanwhile, San Francisco-based Twilio reported a smaller-than-expected loss of 27 cents a share compared with estimates for a loss of 36 cents. Revenue rose 33% to $983 million, topping estimates of $972 million.

But Twilio forecast December revenue in a range of $995 million to $1 billion, up 18.5% at the midpoint of guidance, missing forecasts of $1.07 billion.

“The macro continues to deteriorate and is the core driver of the tapering. Weakness continued in crypto, consumer-on-demand, social and more recently spread to e-commerce and retail,” Jefferies analyst Samad Samana said in a note.

Twilio’s communication tools enable app developers to embed voice, text messaging and video into their products. In addition, Twilio’s software makes it easier for cloud-based applications to communicate.

Software stocks headwind

Cloudflare also reported a profit of 6 cents, topping estimates for zero earnings. Revenue rose 47% to $253.9 million, missing estimates of $250.6 million.

San Francisco-based Cloudflare said it expects December revenue of $274 million, a 42% increase, in the middle of the outlook, just above forecasts of $273.7 million.

“The upside for the third quarter delivered the most modest pace compared to the previous quarter,” Cowen analyst Shaul Eyal said in a note. “Q4 guidance reflects potential headwinds, including macro slowdown, lengthening sales cycles and exchange rate headwinds.”

Cloudflare Stock: New Chief Revenue Officer

Cloudflare announced that Chris Meritt, the company’s chief revenue officer, will step down. Furthermore, he will be replaced by former Twilio CEO Marc Boroditsky.

“Management acknowledged that the weak macro conditions are starting to have an impact on earnings,” Wells Fargo analyst Andrew Nowinski said in a note. “(It) noted that sales cycles are taking longer to close at the high end of the market, which almost every other company in the space is reporting. But given the valuation, expectations are certainly higher for Cloudflare.”

Founded in 2009, Cloudflare accelerates and provides security for web applications routed through the intelligent global network. In addition, the company competes in both the business and consumer markets.

Earnings reports for the September quarter for all three software stocks came in after the market closed Thursday.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cyber security and cloud computing.

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