(Bloomberg) -- Software companies fell on Friday, extending recent losses after results from Atlassian Corp. topped analyst forecasts yet failed to provide enough upside to assuage concerns over the group’s valuation.
Atlassian shares dropped as much as 11% to their lowest level since May. The stock was on track for its third straight decline, as was Veeva Systems Inc., off 5.4%, and ServiceNow Inc., down 3.8%, which reports its own results next week. Coupa Software Inc. sank 8.4% in its fourth straight drop, a period over which it has shed more than 20% of its valuation. Twilio Inc. was down 4.5%. Alteryx Inc. was down 7.2% and Crowdstrike Holdings Inc. dropped 7.3%, heading for the eighth decline in the past nine sessions.
A basket of high-multiple software stocks tracked by Goldman Sachs fell 5.7% in its fifth straight decline, hitting its lowest since March, while the Russell Midcap Technology Growth Index was down 2.2%.
“When investors have lost conviction, it usually means the best strategy is to stay conservative until the coast is at least somewhat clear,” wrote Richard Davis, an analyst at Canaccord Genuity. “We are in that time in the cycle.”
Davis has a buy rating on Atlassian, writing that it “fits the description of a safe harbor company.” However, he said the stock has a “high-ish valuation” and suggested that multiples could be hard to justify. “In this macro environment,” he wrote, “if anyone expected an over-sized guide up, they haven’t been paying attention.”
Recent weakness in the sector included both Workday Inc. and Zoom Video Communications Inc. tumbling in the wake of their respective investor events, which underlined growth concerns.
Atlassian’s results included a raised full-year revenue forecast, and Cowen wrote that this could ease broader concerns over the sector.
This “was one of the more anticipated prints in software as a result of emerging macro concerns in the space and it being one of the first to report,” analyst J. Derrick Wood wrote. The “solid numbers & outlook, along with constructive commentary on stable demand conditions, should give investors greater comfort in the potential for stability in software spending.”
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