Shares of work-collaboration software company Atlassian (TEAM -9.56%) got hammered on Friday after the company reported financial results for the fiscal second quarter of 2024. Even though the stock is down, the company may have more analysts than not defending its financial results, which is an interesting wrinkle to this story. As of 11:15 a.m. ET, Atlassian stock was down 12%, but was bouncing back from being 17% down earlier in the session.
The market doesn't like slowing growth
Revenue for Atlassian's fiscal Q2, ended in December, topped $1 billion for the first time. The company's total revenue was up 21% year over year, which was its slowest top-line quarterly growth rate since it went public 2015. Guidance for the upcoming third quarter implies further deceleration, with Q3 revenue expected to be up by 20.8% at most.
While it seems many investors are negatively reacting to Atlassian's decelerating growth, Wall Street doesn't believe this is a time to sell. For example, JMP Securities analyst Patrick Walravens recommends holding Atlassian stock, according to TipRanks, because there's still plenty of strength in the business. However, Walravens did point out that Atlassian's organic revenue growth for cloud isn't quite what investors expect.
Cloud revenue is important for Atlassian because it's transitioning its customer base to the cloud. In Q2, cloud revenue was up 27% and it expects at least 30% cloud revenue growth next quarter. However, the company acquired Loom in October, which will contribute to this growth, so not all of the guidance for growth is organic. And this concerns some investors.
What to do now
It's hard to know what to do with Atlassian stock right now. On one hand, the company continues to gain and retain enterprise customers, transition users to the cloud, and produce positive cash from operations -- it generated $457 million in cash from operations in the first half of its fiscal 2024. In short, the business is strong.
On the other hand, Atlassian is still a richly valued stock, even after today's drop. And with questions regarding its long-term growth rates, Wall Street might be right by recommending investors hold rather than buy shares today.
