What Happened?
Shares of IT project management software company, Atlassian (NASDAQ:TEAM) fell 5.9% in the afternoon session as stocks tumbled (Nasdaq down 2%, S&P 500 down 1.7%) after the Fed signaled that there would be fewer cuts ahead (than expected) during the December 2024 FOMC meeting.
This announcement followed the committee's decision to reduce rates by 0.25% to a range of 4.25%–4.5%, which was largely in line with consensus forecasts. Looking ahead to 2025, the Fed is expected to implement two quarter-point rate cuts, suggesting that future policy adjustments will be implemented at a slower pace, with the committee reiterating a data-driven approach that factors future inflation data and updates on the labor market.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Atlassian? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Atlassian’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was about 2 months ago when the stock gained 22.9% on the news that the company reported a "beat and raise" quarter. Third-quarter results beat analysts' revenue expectations, with all-important Cloud segment revenue growth handily beating expectations. Its gross margin also improved. Looking ahead, guidance was strong, with next quarter's Cloud revenue growth of 27% year-on-year also above expectations and strong on an absolute basis. The company also raised its full-year revenue guidance for the Cloud and Data Center segments. There had been doubts about top line momentum, especially for Cloud revenue, so this quarter puts a big dent in the bear case. Overall, this was a very solid quarter.
Atlassian is up 12.5% since the beginning of the year, but at $255 per share, it is still trading 11.3% below its 52-week high of $287.50 from December 2024. Investors who bought $1,000 worth of Atlassian’s shares 5 years ago would now be looking at an investment worth $2,159.
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