Enterprise Software "Macro" Trouble - TWLO and TEAM

From Barrons, while Atlassian is currently down 23% after hours after being down 10 more % the last 5 days, heading towards 3 year lows; and TWLO down 22% after hours and hitting levels it hasn’t seen since mid '18

For the second quarter, Atlassian sees revenue of between $835 million and $855 million, shy of Street consensus at $879.2 million. And like Twilio, Atlassian’s quarterly shareholder letter carries alarming tidings about the business.

Last quarter, we shared that we saw a decrease in the rate of free instances converting to paid plans. That trend became more pronounced in Q1,”Atlassian said in a letter signed by co-CEOs Mike Cannon-Brookes and Scott Farquhar. They added that Atlassian has started to see “a slowing in the rate of paid user growth from existing customers.”

The letter went on to say that the issue boils down to customers responding to the weakening economic environment. The two trends, Atlassian said, “are the result of companies tightening their belts and slowing their pace of hiring. In other words, Atlassian is not immune to broader macroeconomic impacts.”

What makes this situation so troubling is that the cloud was supposed to be one of the last places customers would cut spending in a downturn—the theory was that cloud-based software saves money and makes companies more efficient. But it turns out that there are very few truly recession-resistant businesses in technology, or anywhere else.

Maybe Barron’s just inadvertently called the bottom in this space, again. Or, the law of decreasing returns to scale begins to take hold - 50,60,70% growth cannot go on forever.
(wsj or Barrons Account needed) Cloudflare Shares Slip Despite Q3 Profits Above Estimates | Barron's

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That’s why the top of the “S” curve sets in. As market saturation nears the universe of new potential customers shrinks dramatically and this is one more reason why linear extrapolation doesn’t give good results.

TWLO and TEAM are part of the growth forever cloud stocks. You have to learn when to hold and when to fold.

BTW, I gave up on the cloud, much to complicated when there are simpler and just as powerful growth stocks.

The Captain

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