Atlassian Earnings: Selloff After Strong Quarter Contrasts Our Belief in a Quality Growth Company

We are raising our fair value estimate to $225 per share, from $215 previously, for narrow-moat Atlassian after it reported good results for its fiscal second quarter that surpassed our expectations. Additionally, it raised its full-year outlook for both cloud and data center revenue, as well as adjusted operating margin. We are unconcerned about an after-hours selloff, given the strong run shares have had over the last 13 months, but we now see the stock as fairly valued. We believe the firm is executing well on its migration objective, are encouraged by indicators of an improving macroeconomic environment, and we think the free-to-paid model has developed a large funnel to convert over the next several years.