Atlassian Sees Macroeconomic Headwinds Persist, Slowing Conversion of Free Users; FVE Cut to $190

We are lowering our fair value estimate for narrow-moat Atlassian to $190 per share from $210 after the company reported fiscal 2023 second-quarter results that were notably better than guidance but also lowered its full-year revenue outlook. Despite the strong quarterly results, we are concerned about macroeconomic headwinds that Atlassian faces, including lower free to paid conversion rates and slower paid seat expansion. Management expects these pressures to persist over the next six months, leading to a lowered outlook for cloud revenue from 40%-45% annual growth to 35%-40%. These trends continue to intensify with decelerating user expansion predominantly concentrated around its smaller customer base. On a positive note, customer downgrades to return to a free version have started to subside. We see some upside for the stock but prefer wide-moat names like Salesforce and ServiceNow.