The lining in cloud-software stocks Friday was blood red instead of silver.
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 ETFs tracking the cloud industry were headed for their worst week on record, while some of the biggest names in the industry saw billions in market capitalization evaporate.
The First Trust Cloud Computing ETF
the Global X Cloud Computing ETF
and the WisdomTree Cloud Computing Fund
fell as much as 5% Friday, with the latter two heading for their worst week on record; the First Trust Cloud Computing ETF was on track for its second worst week on record, after a 12.6% decline in the week ending Aug. 19, 2011.
Leading the race for the bottom for cloud-software were shares of Atlassian Inc.
which were both easily heading for their worst day ever having both shed a third or more of their value in Friday trading. 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 BofA 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.
The declines bled over to the largest cloud-software names as well Friday, even as most have yet to report earnings this season. Salesforce Inc.
shares fell 6%, and were headed for their worst week since August 2011, and Service Now Inc.
shares declined 7% and were headed for their worst week since February 2016. Shares of Okta Inc.
fell 10%, Snowflake Inc.
shares fell 12%, MongoDB Inc.
shares dropped 8%, and Workday Inc.
shares fell 6%.
Meanwhile, shares of cybersecurity company Cloudflare Inc.
dropped as much as 20% following earnings late Thursday, pulling down other names in the space like Palo Alto Networks Inc.
and CrowdStrike Holdings Inc.
kicked off that decline Thursday, after forecasting fourth-quarter billings late Wednesday that undershot analysts’ expectations, sending shares down nearly 14% in Thursday trading. Fortinet’s stock was on track for its worst week since October 2015, according to FactSet records.
Cybersecurity stocks specifically were heading for their worst week in 2½ years, with the ETFMG Prime Cyber Security ETF
down more than 10%, its worst since a 13% drop the week ended March 13,2020. The First Trust Nasdaq Cybersecurity ETF
was down nearly 11%, also on track for its worst week since early 2020.
Of the various cloud-computing ETFs year to date, CIBR is faring best with a 29% drop, and WCLD is performing the worst with a 55% drop, compared with a 22% fall on the S&P 500 index
and a 34% drop in the Nasdaq Composite Index.