Mike Sakuraba graduated with double major of English and Economics. Part time writer, part time investor, full time dad. Mike loves writing about technology, sports, and investing.

2022-11-05 11:22

SaaS Companies Continue to Get Hit Hard
It wasn’t too long ago when SaaS companies were all the rage. The lovely recurring revenue models were almost a guarantee to keep the company growing while providing strong margins for shareholders. A bear market is a fast reminder that no company or sector is immune to a weakened economy. So while we can all agree that some SaaS stocks were trading at outrageous multiples during the pandemic, the rapid decline in these stocks has been a bit surprising for growth investors. Here are two SaaS companies that are starting to get interesting at their current prices.

Twilio (NYSE: TWLO)
Ah, Twilio. I get it, Wall Street analysts want companies to fall within certain parameters. If they don’t the stock usually gets sold off following an earnings call. A lot of times, these become great buying or selling opportunities for investors. Twilio is a software company that provides APIs to other companies that can utilize them to call or text their customers. These communications can be for reminders, service updates, or getting customer feedback. Think about receiving a delivery order or resetting an account with multi-factor authorization codes. It’s not a business we think about much but Twilio is rapidly growing behind the scenes.

Well on Thursday, Twilio reported its earnings and beat expectations on both the top and bottom lines. The company also added 5,000 more customers and cut about 800 workers from its payroll. Job loss is unfortunate but all of these things are positives for the company. Then why did Twilio’s stock fall by more than 20% in extended trading? The company’s revenue outlook came in slightly lower than expected. For a company that is on the verge of being profitable and is adding customers hand over fist, a 20% sell-off seems like an overreaction. I didn’t really want the stock at over $300 last year, but now at just over $50, it certainly has my attention.

Atlassian (NASDAQ: TEAM)
For some time now, Atlassian has been a steady SaaS performer that continues to put together rock-solid quarters. If you don’t know what Atlassian does, it creates software for developers and product managers. While it has an impressive portfolio of products, it is mainly known for its JIRA project tracking service. On Thursday, Atlassian reported a miss on earnings and a slight beat on revenues for the third quarter. The company added 6,550 new users bringing its impressive total to 249,173 global subscribers. The stock fell by 22.6% following the call.

Okay, so what gives? On the surface, it seems like a good report. Atlassian provided a weaker-than-expected revenue outlook and stated that the macroeconomic situation has slowed the number of free users converting to paid subscriptions. These all seem like temporary problems and a 22% sell-off again seems like an overreaction. Atlassian is a well-respected name in the developer community and the company continues to grow its client base. If the stock continues to drop, it’ll definitely be one I will be interested in adding to my portfolio.