By Wallace Witkowski
Atlassian , Twilio stocks both shed a third of their value Friday on their worst day yet, and other cloud-software declines are sending ETFs tracking the industry to their worst week on record amid forecasts that show slowing growth
Salesforce Inc. and other cloud-software stocks shed red over the week, as the lining in cloud-software stocks Friday turned blood red instead of silver, sending some cloud companies and ETFs tracking the industry to some of their worst weeks ever.
Forecasts from former software darlings this week added to fears about businesses cutting back on capital spending in the face of a possible recession, and their stocks paid a large price. Multiple cloud ETFs finished the week down, with one logging its worst week on record, as some of the biggest names in the industry saw billions in market capitalization evaporate.
It was the worst week ever for the Global X Cloud Computing ETF (CLOU), which finished down 11.3%. Meanwhile, the First Trust Cloud Computing ETF (SKYY) managed to score only it's third worst week on record with a 10.9% drop.
But the WisdomTree Cloud Computing Fund (WCLD) managed to avoid its worst week ever by 2 basis points when it closed down 14.74% Friday, just short of the 14.76% drop for the week ending March 13, 2020, according to FactSet data.
Atlassian shares sank 38.4% this week, beating out their former worst of 20.4% for the week ending Jan. 7, 2022. Late Thursday, Atlassian execs said customers were converting to paid subscriptions from freemium versions at a slower pace Twilio caught a two-notch downgrade from B. of A. Securities analyst Michael Funk before the company forecast a poor outlook.
Those declines bled over to the largest cloud-software names as well Friday, even as most have yet to report earnings this season. For the week, Salesforce Inc. (CRM) shares dropped 14.9% for their worst week since the one ending Aug. 19, 2011, and Service Now Inc. (NOW) shares fell 14.6% for the week.
Workday Inc. (WDAY) shares dropped 15.9% over the week for their worst ever, and Okta Inc. (OKTA) shares fell 21.2% over the week for their second worst ever, their worst being the week ending Sept. 2 over which shares shed 30.9% .
Snowflake Inc. (SNOW) shares dropped 17.2% over the week, and MongoDB Inc. (MDB) shares dropped 22.1% over the week, according to FactSet data.
Meanwhile, shares of cybersecurity company Cloudflare Inc. (NET) shares logged their worst week ever with a 25.8% decline, following earnings late Thursday, weighing down other names in the space like Zscaler Inc. (ZS), which finished the week for its second worst ever at a 21.4% stock price decline, and CrowdStrike Holdings Inc. (CRWD), which also saw their stock having their second worst ever with a 22.1% fall.
Fortinet Inc. (FTNT)kicked off that decline Thursday, after forecasting fourth-quarter billings late Wednesday that undershot analysts' expectations, sending shares down 18.7% in Friday
Read: Security-software stocks are suffering from this one gloomy forecast
Cybersecurity stocks specifically were heading for their worst week in 2 1/2 years, with the ETFMG Prime Cyber Security ETF (HACK) down 9.6%, its worst since a 9.9% drop the week ended March 13, 2020. The First Trust Nasdaq Cybersecurity ETF (CIBR) was down 9.8%, its worst week since early 2020.
Companies like Atlassian and Twilio were seen as a strong bet heading into a recession, as cloud software can help to reduce costs from legacy software as well as create efficiencies within organizations. Raymond James analyst Adam Tindle, in detailing the read-throughs on Atlassian's report, explained how that view is now changing on Wall Street.
Atlassian's results "suggest even the most diversified, low cost, visible growth models (cloud transition) are not immune to this brutal macro environment and shares are de-rating accordingly," Tindle said in a note.
Cowen analyst Derrick Wood, who has a market perform rating on Atlassian, characterized the company's miss on billings as "rare," and also pointed out another weakness.
As layoffs and hiring freezes are playing out across the tech industry, Wood said fewer big customers are growing out their capacity because of fewer developers being hired.
"We see Atlassian enjoying incumbency advantages alongside low-cost products, but the company is undergoing a multi-year model transition to the cloud and shift in pricing structure; meanwhile there have been several formidable competitors entering the market with compelling consumer-grade software packages," the Cowen analyst said.
Then again, Atlassian sees the problem as an opportunity, as in hiring talent from a large pool, especially with layoffs from companies like Elon Musk-owned Twitter.
"There's a lot of incredible people in the market who may only come on the market once a decade and may have an opportunity to pick those staff up now," said Scott Farquhar, Atlassian co-chief executive and co-founder on a conference call with analysts. "And so, we've been really thoughtful around kind of how many we hire and where we hire."
"But our experiences that we can come out really strong on the other side by selectively picking out staff that other people letting go," Farquhar said.
Of the various cloud-computing ETFs year to date, CIBR is faring best with a 28% drop, and WCLD is performing the worst with a 55% drop, compared with a 21% fall on the S&P 500 index and a 33% drop in the Nasdaq Composite Index.
(END) Dow Jones Newswires
November 05, 2022 11:50 ET (15:50 GMT)
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