Company Reports

Narrow-moat Atlassian reported strong third-quarter results, including upside to both our top- and bottom-line expectations. Management also provided good guidance for the fourth quarter. That said, we are maintaining our fair value estimate of $225 per share as we await fiscal-2025 guidance with next quarter's results. In our view, Atlassian is performing well against its migration road map, and we are further encouraged with positive demand trends amid an improving environment. We acknowledge demand issues from smaller customers, though. We are unconcerned about the 6% drop in share price after-hours given the firm's strong fundamentals and view the stock as attractive.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. The firm has also gradually moved upmarket toward enterprise customers, even as it continues to serve customers of all sizes.

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.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. The firm has also gradually moved upmarket toward enterprise customers, even as it continues to serve customers of all sizes.

We are maintaining our fair value estimate of $215 per share for narrow-moat Atlassian after the company reported good results for its fiscal first quarter coupled with solid guidance for the second quarter. With shares selling off after hours we see a buying opportunity. Our model changes are minor and we struggle to uncover a supportable rationale for the selloff. Demand trends remain healthy overall and are showing signs of improvement as the company reported better-than-expected revenue and much-better-than-expected profitability. Guidance calls for solid revenue growth and good operating margins. Overall, results support our long-term thesis on a quality growth company.

Atlassian closed out its fiscal 2024 with a bang, punctuated by meaningful upside to our expectations on both the top and bottom lines. Guidance was similarly strong for the first quarter. Despite these bullish signs, macro conditions continue to have a negative impact on paid seat expansions at existing customers and conversions from free to paid users, similar to the past few quarters. Given strength in results and guidance, we are more optimistic about our long-term growth and profitability assumptions and as a result are raising our fair value estimate to $215 per share, from $165 previously. Despite the 20%-plus spike in price after hours, we see shares as fairly valued.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. The firm has also gradually moved upmarket toward enterprise customers, even as it continues to serve customers of all sizes.

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.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. The company has also gradually moved upmarket toward enterprise customers, even as it continues to serve customers of all sizes.

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.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. The company has also gradually moved upmarket toward enterprise customers, even as it continues to serve customers of all sizes.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. The company has also gradually moved upmarket toward enterprise customers, even as it continues to serve customers of all sizes.

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.

Atlassian reported good results for its fiscal fourth quarter, including nice upside to revenue compared with our model and better operating margins. Still, given the macro environment and uncertainty around the firm’s model transition, we have moderated our growth and margin outlook over the next several years and are therefore lowering our fair value estimate to $375 per share from $428 for narrow-moat Atlassian. As is the case with most of our software coverage, we view the stock as attractive. We are impressed by 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.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. Atlassian’s products are used by organizations of all sizes, from small teams at small and midsize businesses to large teams at large enterprises.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. Atlassian’s products are used by organizations of all sizes, from small teams at small and midsize businesses to large teams at large enterprises.

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.

We are raising our fair value estimate to $428 per share from $405 for narrow-moat Atlassian based on strong second-quarter results and guidance. In light of the three month sell-off in software stocks, we see shares as undervalued even after the 10% pop in after-hours trading. Atlassian brought home a strong quarter in all facets, including upside compared with our revenue and profitability expectations, and notably around cloud revenue and new customer additions. Management also provided similarly strong guidance for revenue, while its outlook for non-IFRS operating margin came up short relative to our model. In addition, the firm's cloud migration is progressing very well. While the more rapid model transition is pressuring margins near-term, we remain bullish on Atlassian's ability to deliver margin improvements over time while still pushing revenue higher. Jira Service Management solutions were notably strong and remain a critical driver of growth in both traditional IT help desk and noncore service management applications. We view robust second-quarter results as reinforcing our view that Atlassian offers a broad set of easy to purchase, deploy, and use IT tools that can help customers innovate and cut costs.

Atlassian endeavors to “unleash the potential of teams” through better planning, project management, and workflow software, and we think its strong momentum is likely to continue over the next five years as the transition to the cloud continues. Atlassian’s original product, Jira, was designed as a workflow solution for software developers that has grown into a richly featured, easy-to-use, inexpensive, easy-to-buy application. The software is often bundled with Confluence, a collaboration tool. Atlassian’s products are used by organizations of all sizes, from small teams at small and midsize businesses to large teams at large enterprises.

We are raising our fair value estimate to $405 per share from $303 for narrow-moat Atlassian based on strong first-quarter results and guidance causing us to raise our growth expectations and margin expansion trajectory for the longer term. With shares up 8% after hours, we view shares as skewing expensive, but we think continued quarterly strength would provide valuation support. Atlassian kicked off fiscal 2022 in style, including substantial upside to the high end of guidance for both revenue and non-IFRS EPS in the first quarter. Management also provided similarly strong guidance for revenue, while non-IFRS EPS was slightly below Factset consensus for the December quarter. In addition, the firm's cloud migration is gaining steam and ahead of the pace we had previously modeled. While the more rapid model transition is pressuring margins near-term, we remain bullish on Atlassian's ability to deliver strong financial results while increasing its business at an impressive pace. We view robust first-quarter results as reinforcing our view that Atlassian offers a broad set of easy to purchase, deploy, and use IT tools that can help customers innovate and cut costs.