Enterprise productivity software company Atlassian Corp. Plc. saw its share price take a nosedive today despite topping Wall Street’s targets with its first-quarter financial results as its guidance for the next quarter came in somewhat lighter than expected.

The Australian company, which sells project management and collaboration software for developers and engineers, including products such as Jira, Confluence and Bitbucket, reported a profit before certain costs such as stock compensation of 30 cents per share. It also reported revenue of $459.5 million, up 26% from the same quarter one year before.

Wall Street had the company nailed down for earnings of 27 cents per share on revenue of $440.4 million.

“We continued to build momentum in the cloud, and delivered increased value to our customers,” said Mike Cannon-Brookes (pictured), Atlassian’s co-founder and co-chief executive.

The company also reported big growth in its subscription revenue, which rose to $277.9 million, up from just $201.1 million a year prior. Atlassian’s customer count rose on a net bases by 8,620 in the quarter. It now has 182,717 customers that are on active subscriptions or maintenance agreements.

Although that all sounds rather promising, Atlassian isn’t growing as quickly as its investors had hoped for. Like many companies, Atlassian has found itself at the mercy of the coronavirus pandemic, and in its last quarter it did warn of some risk to its business because of its exposure to small businesses and monthly cloud contracts that could be canceled at any time. Larger enterprises have the funds to keep investing in software, but smaller firms struggling during COVID-19 may not.

The most pressing challenge for Atlassian’s management now is to find out how, and address why its costs grew faster than the its revenue did this quarter, Constellation Research Inc. analyst Holger Mueller told SiliconANGLE.

“The deeper underlying question is, does Atlassian have the right tools for the new evolving best practices in a pandemic world where enterprises are building and implementing software differently?” Muller asked. “The good news is that Atlassian has boosted its R&D spending and is spending more on this than combined sales and marketing expenses. That should put it onto a good trajectory for product innovation and new capabilities.”

In any case, it’s likely going to take time for Atlassian to turn its fortunes around. That’s if the company’s fiscal second-quarter guidance is anything to go by, as it came in much lower than expected. Atlassian has forecast a profit of 30 to 32 cents per share on revenue of between $460 million and $475 million. Wall Street analysts were hoping for a bit more, forecasting a 33-cent-per-share profit on revenue of $479.6 million.

Atlassian’s stock was down almost 5% in after-hours trading.

Analyst Charles King of Pund-IT Inc. said the after-hours selloff was almost certainly due to its focus on smaller business customers.

“Those companies have been hit particularly hard by COVID-19 and, with a vaccine’s appearance likely months away, they will continue to remain under pressure,” King said.  “Add in Atlassian’s forecast for somewhat similar results in quarter ahead and it’s understandable that some shareholders will look for opportunities elsewhere.”

Photo: TEDxSydney/Flickr