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: Think you had a bad week? Salesforce, cloud companies had some of their worst weeks ever


The lining in cloud-software stocks Friday was blood red instead of silver, sending ETFs tracking the cloud 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
which finished down 11.3%. Meanwhile, the First Trust Cloud Computing ETF

managed to score only it’s third worst week on record with a 10.9% drop.

But the WisdomTree Cloud Computing Fund

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.

Leading the race for the bottom for cloud-software were shares of Atlassian Inc.

and Twilio

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.

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,” they wrote.

“We do see the cloud transition as a ‘when not if’ and pricing incentives to move existing customer to Cloud will create an uplift upon renewals, but we have concerns around 70% of Cloud customers being on monthly plans that are easy to turn off if economic distress continues,” Tindle continued, while maintaining a “market perform” rating.

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.

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, both Salesforce Inc.

and Service Now Inc.

shares declined 6.6%. Shares of Okta Inc.

fell 10.2%, Snowflake Inc.

shares dropped 17.2%, MongoDB Inc.

shares dropped 22.1% over the week, and Workday Inc.

shares fell 15.9% for the week, according to FactSet data.

Meanwhile, shares of cybersecurity company Cloudflare Inc.

dropped 25.8% following earnings late Thursday, pulling down other names in the space like Palo Alto Networks Inc.
Zscaler Inc.
and CrowdStrike Holdings Inc.

all of which finished the week down 16.7%, 21.4%, and 22.1%, respectively.

Fortinet Inc.

kicked off that decline Thursday, after forecasting fourth-quarter billings late Wednesday that undershot analysts’ expectations, sending shares down 17.5% in Thursday trading. Fortinet’s stock was on track for its worst week since October 2015, according to FactSet records.

Read: Security-software stocks are suffering from this one gloomy forecast

Cybersecurity stocks specifically were heading for their worst week in 2½ years, with the ETFMG Prime Cyber Security ETF

down 9.6%, its worst since a 9.9% drop the week ended March 13, 2020. The First Trust Nasdaq Cybersecurity ETF

was down 9.8%, its worst week since early 2020.

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.

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