Atlassian Corporation: a Stock with AI Potential Posed for Further Growth

In This Article:

Investment Thesis

Atlassian Corp. (NASDAQ:TEAM) smashed Q3 earnings despite high expectations and, despite being relatively expensive, has room to grow. The business continues to develop and diversify. The financials and the outlook are solid. And the Board is shareholder friendly: it authorized a new share repurchase program for $1.5 bn once the 2023 authorized $1.0 bn is completed. The arrival of a new Chief Revenue Officer in January 2025 Brian Duffy from SAP SE (SAP), a competitor, where he was President of Cloud, could additionally unlock real potential in the cloud segment of Atlassian.

Atlassian Corporation: a Stock with AI Potential Posed for Further Growth
Atlassian Corporation: a Stock with AI Potential Posed for Further Growth

The stock already did a 7x since IPO in 2015 and, despite impressive progress this year, is down -10% on a YTD basis. This potentially shows the market waited for earnings to catch up and valuation to cool down - and while the stock remains somewhat expensive, there is a real long-term opportunity.

Business Overview

Starting from the recent business highlights, there were several fronts of evolution that preserve the business model's attractiveness. The most exciting product announcement is Rovo because of two letters: AI. Indeed, the company announced this long-awaited SaaS product powered by AI. Rovo is like an AI-powered work colleague aimed to revolutionise corporate organisations. It has features such as search capabilities (including chat for knowledge) and can help with complex and/or repetitive problems within a corporation. Rovo just became available for customers and is a potential growth catalyst that is yet to be included in the financial outlook of the company.

The company also announced Atlassian Focus (a new product line in the ERP segment) as well as the expansion of its flagship Jira offering with additional premium editions. The fact that the number of customers with over $10k in Cloud ARR increased by 17% shows the growing customer retention (and satisfaction) of Atlassian. Not only the customers are happy: Atlassian was recognized on Fortune's 2024 list of Best Workplaces in Technology.

Financials, Outlook and Valuation

Diving into the calendar Q3 2024 earnings (fiscal Q1 2025), the company is demonstrating significant growth rates. The overall revenue reached $1.19 bn, up 21% YoY, of which subscription revenue represents $1.12 bn (+33% YoY). Despite a GAAP operating margin of -3% (non-GAAP at 23%), the company generated $80 mn in cash from operations and $74 mn of FCF, further growing the cash pile it is sitting on: cash and cash equivalents totalled $2.3 bn.

Atlassian Corporation: a Stock with AI Potential Posed for Further Growth
Atlassian Corporation: a Stock with AI Potential Posed for Further Growth

The balance sheet is healthy with the large cash pile, long-term assets exceeding long-term liabilities by $500 mn and a current ratio above (1.18). There is no financial trouble in sight. And the outlook gives little reason to believe the opposite. For the calendar Q4 (fiscal Q2 2025), the total revenue is expected to continue rising and hit $1.23-1.24 bn. Both cloud and data center revenue streams are expected to increase by more than 25% each (25.5% and 27.5% respectively).

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