Atlassian Corporation (NASDAQ:TEAM) released its third-quarter results, exceeding expectations for both earnings and revenue. However, shares dropped over 16% in pre-market trading following disappointing fourth-quarter guidance that fell below Wall Street predictions.

The collaboration software provider reported adjusted earnings of $0.97 per share, significantly above the $0.78 consensus estimate. Revenue hit $1.36 billion, reflecting a 14% year-over-year increase, also exceeding expectations.

Despite the strong Q3, investors reacted negatively to the company’s fourth-quarter revenue forecast of $1.349 billion to $1.359 billion, which was considerably below the anticipated $1.6 billion. This oversight overshadowed encouraging growth within the company’s Cloud segment, which saw revenue rise 25%.

Cloud annual recurring revenue (ARR) exhibited healthy growth as well, with a 14% increase in customers contributing over $10,000 in ARR, totaling 50,715 customers.

CFO Joe Binz reiterated the company’s commitment to long-term growth through strategic improvements in enterprise solutions, AI investments, and its comprehensive System of Work. However, the tepid outlook raised investor concerns regarding a slower cloud transition and economic challenges.

While Atlassian’s operational foundations remain strong, the disappointing forecast injects uncertainty, triggering a sell-off in shares.