Atlassian Earnings: Good Results, but Seat Expansion and Conversion of Free Users Remain Issues

Atlassian posted good results for its fiscal third quarter, including revenue and profitability that were better than we expected. The company provided a mixed outlook for the fourth quarter that we think investors will latch on to. Notably, macro conditions continue to negatively affect paid seat expansions at existing customers and conversions from free to paid users. While this is consistent with the last couple of quarters, the cloud version seems to be feeling this effect the most. As a result, we have decreased our growth outlook over the next couple of years, which leads to a reduction in our fair value estimate to $165 per share from $190. Despite the postearnings selloff, we see the shares as attractively valued, but we would prefer to see signs of stabilization in the negative demand trends before putting money to work.