Why Atlassian Stock Fell on Friday

What happened

Despite reporting strong sales and free-cash-flow growth in its fiscal third-quarter results on Thursday afternoon, shares of the collaboration and productivity software company Atlassian (NASDAQ: TEAM) took a hit on Friday, falling as much as 12.4%. At the time of this writing, the stock is down 6.6%.

Bearishness toward the stock on Friday could be due to an analyst downgrade from JMP Securities, or also because Atlassian's guidance for its fiscal fourth-quarter non-IFRS (International Financial Reporting Standards) earnings per share was below analysts' consensus estimate for the period.

A hand holding a blue cloud in front of a chalk board, with three laptops drawn on it with lines linking them to the cloud.

Image source: Getty Images.

So what

Adding a record 6,000 net new customers during its fiscal third quarter and engaging with almost 3,000 users and partners during the period, Atlassian's third-quarter revenue soared 40% year over year, from $159.9 million in the third quarter of fiscal 2017 to $223.7 million. Free cash flow also rose impressively, climbing 26% year over year to $86 million.

Atlassian said it expected fiscal fourth-quarter revenue in between $232 million and $234 million and non-IFRS EPS of $0.12. On average, analysts are forecasting for fiscal fourth-quarter revenue and non-IFRS EPS of $232 million and $0.14, respectively.

Meanwhile, JMP Securities downgraded Atlassian stock from market outperform to market perform, arguing that Atlassian's guidance combined with the stock's premium valuation only offer a "balanced" risk-reward ratio.

So what

Despite JMP Securities move to downgrade Atlassian stock, there's no material reason for investors to revise any long-term investment thesis for Atlassian after such a strong quarter. Such a significant pullback in the stock price offers a good opportunity for investors to consider buying shares.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Atlassian. The Motley Fool has a disclosure policy.