Friday morning brought some volatility to the stock market, as an early jump for major market benchmarks lost momentum as the day progressed. Investors continue to watch the situation in China very closely, worrying about whether the coronavirus outbreak could evolve into a more widespread epidemic. As of 11 a.m. EST, the Dow Jones Industrial Average (DJINDICES:^DJI) was down 1 point to 29,159. The S&P 500 (SNPINDEX:^GSPC) had dropped 5 points to 3,320, but the Nasdaq Composite (NASDAQINDEX:^IXIC) was higher by 3 points at 9,406.
Market participants continued to see divergence across companies reporting earnings. Cloud computing company Atlassian (NASDAQ:TEAM) saw strong results that lifted investors' spirits, but Discover Financial (NYSE:DFS) had to deal with some headwinds that could spell trouble for the broader economy if they persist.
An Atlassian effort
Shares of Atlassian soared 10% after it reported fiscal second-quarter financial results. The team collaboration and productivity software specialist continued to show strong growth, satisfying investors hoping Atlassian will keep capitalizing on the cloud computing opportunity.
Fundamentally, Atlassian saw its revenue rise 37% from year-ago levels, with a 50% rise in subscription-based revenue. The company heralded the milestone of $1 billion in lifetime sales for the company, and net income came close to tripling year over year as Atlassian demonstrated its rising capacity to make a profit as it grows.
Atlassian's client base continued to grow as well. The company added more than 5,000 net new customers during the period, bringing its total customer count to nearly 164,800.
Looking ahead, Atlassian has ambitious hopes for the future, with revenue expected to approach $400 million in the fiscal third quarter. With high profit margin figures and strong demand for its platform, Atlassian looks poised to keep gaining altitude as a leader in the cloud.
A problem for Discover?
Meanwhile, shares of Discover Financial Services were down almost 10%. Despite what appeared to be a solid quarter for the credit card and consumer finance company, investors didn't like what they saw at Discover.
At first glance, Discover's fourth-quarter financials didn't have any glaring problems. Earnings were up 11% year over year on a 5% rise in revenue net of interest expense, and total loans outstanding were up 6% from year-ago levels. But some investors seemed concerned about the move higher in Discover's charge-off rate, as the modest move from 3.08% a year ago to 3.19% in the most recent quarter raised questions about the capacity of U.S. consumers to keep going further into debt even with rock-bottom interest rates.
Several stock analysts also downgraded their views on the stock after Discover said it expects higher expenses in 2020. With competition in payment processing on the rise, Discover hasn't innovated at the same pace as some of its peers. Spending money to catch up isn't a bad business move, but it will have a negative impact on short-term profits.
Discover has always been something of a niche player in the credit card industry, and it'll have to come up with a strategy to grow more aggressively in order to keep up. Shareholders seem skeptical about its prospects, but that won't stop Discover from doing its best to defend its territory and seek out growth opportunities.