Atlassian Delivers Strong Results as Cloud Transition Continues; Guidance Mixed; FVE Steady at $428

We are maintaining our fair value estimate of $428 per share for narrow-moat Atlassian after the company reported good third-quarter results and guidance. With the steep selloff in software stocks over the last six months, we view shares as undervalued. Atlassian delivered revenue and profitability ahead of the top end of its guidance. Additionally, management provided a mixed outlook with stronger revenue than we were looking for coupled with weaker margins. Ultimately this is unsurprising, as the company’s transition to the cloud makes modelling more challenging. We are impressed with Atlassian’s cloud migration progress and remain confident that while the rapid transition is pressuring near-term margins, the company will benefit from its investments and drive long-term profitability and revenue growth. We view robust third-quarter results as reinforcing our view that Atlassian offers a broad suite of easy-to-purchase, -deploy, and -use IT tools that can help customers innovate and cut costs.