Atlassian’s share price flop exceeds SaaS stocks of Salesforce and ServiceNow

TSaaS stock prices have plummeted over the past two years as the coronavirus pandemic has made working from home a necessity. But now the market has changed again, and as we enter a recessionary economic climate, companies like Salesforce, Atlassian and ServiceNow have seen a loss in value until 2022.

Pride precedes the fall-as software-as-a-service (SaaS) companies seek. Following a stellar run during the coronavirus pandemic, which saw companies like Zoom [ZM] became household names, SaaS company values ​​are now declining.

The Atlassian share price [TEAM] saw one of the sharpest falls, erasing more than half of its value so far in 2022. The stock dropped 54.2% at the close on May 19, along with Salesforce [CRM] and ServiceNow [NOW] recorded decreases of 38.7% and 34.3%, respectively, over the same period.

At closing on May 19 the Global X Cloud Computing ETF [CLOU]which includes Akamai Technologies [AKAM]Mimecast [MIME] and Dropbox [DBX] among its top 10 holdings, is also down 35.2% year to date.

The crash in SaaS stocks began in November last year but deepened in January as investors began to expect future interest increases from the Federal Reserve. A high interest rate environment is expected to be particularly problematic for SaaS companies, especially those that are not yet profitable.

“SaaS generally goes down because your interest rates go up, and there’s probably a pretty tight correlation between high software growth relative to interest rates,” Khozema Shipchandler, COO of Twilio [TWLO]said CNBC.

Will Atlassian’s diverse client base help it grow?

Atlassian was one of the biggest losers in the markets this past week, down 6.3% on 16 May. Over the past six months, the company’s share price in Australia has lost more than 60% of its value, despite positive earnings.

-$ 31.1m

Atlassian’s losses in Q3 saw the company drop from revenues of $ 160m year-over-year

Its third quarter fiscal results, released on 28 April, showed quarterly revenue reached $ 740m, up 30% year-on-year, while quarterly subscriber revenue jumped 59 % to $ 555m. However, operating margins fell from 12% to a loss of 2%, as it moved from a $ 160m profit in the previous quarter to a loss of $ 31.1m.

Despite this, CEO Mike Cannon-Brookes described the three months ending March 31 as “another strong quarter for Atlassian”. On the call to earnings, co-founder Scott Farquhar pointed out that this was not the first Atlassian recession-“we grew on the other side of it, and we also grew in that collapse”.

Atlassian’s strengths include its diverse client base-no single client accounts for more than 5% of revenues-and its focus on R&D, which enables it to improve products for customers. . In Q3 2022, R&D spending reached $ 363.7m, up from $ 244.1m last year.

Salesforce is expanding into new fields of software

Shares in Salesforce have fallen 47.8% over the past six months (as of May 19). The stock hovered just above its 52-week low of $ 154.64 a week earlier and could see further downward pressure.

In fact, some analysts have downgraded the stock in recent days. Wells Fargo lowered its price target on the stock to $ 225, while Wedbush lowered its own target to $ 275 from $ 315. Despite lowering their growth expectations, however, analysts still consider the stock a good target for investors, with Canaccord, Mizuho and Goldman Sachs among the 36 analysts who gave Salesforce a rating of purchase, according to MarketBeat.

Following the coronavirus pandemic, companies are still working to ensure they can operate in a remote-hybrid way, which means Salesforce is likely to retain and expand the number of customers using subscription products. its. It is also expanding into other software areas that see strong demand, such as ecommerce tools and programming for the public sector.

When Salesforce announced its Q4 fiscal results in March, it said revenues for the quarter rose 26% year-on-year to $ 7.3bn. This is in line with the year-over-year number, which came in at a record $ 26.5bn, up 25% year-on-year. The company also raised its revenue guide for the full year 2023 from $ 32bn to $ 32.1bn.

$ 26.5bn

Salesforce’s full year revenue for FY22, a company record

Stable earnings elevate ServiceNow’s stock rating

While most SaaS stocks are stuck in a downward spiral, ServiceNow’s latest financial results have given investors a reason to return to the stock. The 19 May closing price of $ 426.76 was up 5% from its 52-week low of $ 406.47 on 12 May.

A decent set of results announced on April 28 helped to boost ServiceNow’s share price. It announced that sales entered $ 1.72bn, with earnings per share of $ 1.73, compared to analyst expectations of $ 1.7bn and $ 0.23, respectively.

The company also said demand for its cloud computing products remained strong, with $ 5.7bn obligations on books, up 29% from last year.

According to MarketBeat, 27 analysts have a ‘buy’ rating on the stock, and only three recommend it as ‘hold’ or ‘sell’. The average price target of $ 657.57 also represents a potential gain of 54.1% compared to the 19 May closing price.

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