Worsening Conversions of Free Users, Decelerating Seat Growth Hit Atlassian’s Outlook; FVE to $210

We are lowering our fair value estimate to $210 per share from $375 per share for narrow-moat Atlassian after the company reported fiscal first-quarter results that were slightly ahead of our expectations but offered disappointing guidance for both the quarter and the year, causing us to temper our estimates throughout our model. Last quarter the company experienced lower conversions of free users, which intensified this quarter, while paid user growth also began slowing. With shares trading down over 20% after hours, and despite our fair value cut, while we see material upside for the stock, our preferred names are Salesforce and ServiceNow.