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Atlassian Earnings: Strong Quarter Despite Persistent Pressure on Customer Adds and Conversions

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Atlassian Corp A
(TEAM)

Atlassian TEAM 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.

Total revenue in the fourth quarter grew 24% year over year, to $939 million, compared with the high end of guidance of $920 million. Subscription revenue grew 34% year over year to $800 million, which was considerably stronger than we modeled. Management noted the company is winning larger deals and that enterprise sales were healthy ahead of the end of loyalty discount programs at the end of the quarter. Management continues to expect around 10% of cloud revenue growth to be driven by cloud migrations, attributing loyalty discounts and product improvements as sources for cloud migration resilience. The company also believes most customers will rotate from server at end of life in February 2024 to the data center solution, which is consistent with recent trends.

Customer additions have been volatile over the past several quarters, even as deal sizes are picking up. Atlassian added about 2,600 new customers in the quarter, representing 8% year-over-year growth. Top of funnel demand remains robust, so overall demand is not problematic, in our opinion, even as conversions of free users remain lackluster by historical standards. We see the same macro issues at play that companies across our software coverage are experiencing, so we are not overly concerned about any company-specific issues.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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