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Cloud Stocks: Atlassian Gears Up for Growth, Unfazed by Covid-19

Posted on Monday, May 4th 2020

Last week, leading enterprise collaboration software provider Atlassian (Nasdaq: TEAM) reported a strong third quarter that beat estimates. Even though the company is likely to see some impact due to the Covid situation, it is determined to leverage its agile, resilient culture to make strategic bets that would position it for long-term growth.

Atlassian’s Financials

For the third quarter, revenue grew 33% to $411.6 million, ahead of the market’s forecast of $395.1 million. Net loss was $158.8 million, compared with net loss of $202.8 million a year ago. Adjusted EPS was $0.25, better than the market’s forecast of $0.21.

By segment, Subscription revenues grew 47% to $244.2 million and maintenance revenues grew 21% to $119.6 million. License revenue declined 9% to $21 million and other revenues increased 29% to $26.8 million.

For the fourth quarter, Atlassian expects revenues to grow 31%-32% to $400-$415 million with an adjusted EPS of $0.17 to $0.22. It expects to end fiscal 2020 with revenues of $1.584-$1.5999 billion and an EPS of $1.06-$1.12.

Atlassian’s New Offerings

During the quarter, Atlassian completed the full rollout of free cloud editions across its core products – Jira Software, Confluence and Jira Service Desk. The free editions represent Atlassian’s commitment to make its products more accessible to more teams throughout the world.

At its Remote Summit early last month, Atlassian announced Cloud Enterprise, its most advanced cloud offering that sharpens its focus on enterprise. Cloud Enterprise addresses the needs of the largest enterprises across Jira Software, Jira Service Desk, and Confluence. Key features include managing collaboration across unlimited users, data residency, and centralized administration tools.

At the summit, Atlassian also announced new functions in Jira Align that leverage AI-powered predictive analytics. Align integrates technology from the $166 million acquisition of enterprise workstream management software AgileCraft. Align can now track work across both Jira issues and the more informal Trello cards. It has also added the ability to analyze objectives and key results (OKRs) and to match work activity to outcomes.

Based on another acquisition last year of ecosystem partner Code Barrel, Atlassian introduced a workflow automation tool for all its Jira Cloud customers.

Atlassian in December last year announced Forge, its new cloud app development platform. Forge makes it easier and faster to develop cloud apps by providing compute, storage, security, and ready-made UI components. Forge is built on Amazon Web Service’s Lambda serverless function-as-a-service (FaaS) platform that also helps in managing infrastructure and elements such as authentication, identity and scaling.

Forge is expected to increase the number of third-party cloud apps available on the Marketplace, creating more value for cloud customers. There are currently over 4,000 apps available on the Marketplace. In addition, developers have built 28,000 apps for their in-house teams. Across Jira Software and Confluence, over 60% of customer instances use at least one Marketplace app.

Atlassian’s New Customers

Atlassian’s customer count bounced back in the third quarter. The company ended the quarter with 171,051 customers on an active subscription or maintenance agreement, adding 6,261 net new customers during the quarter. Over 90% of them continued to choose its cloud products. It had added 7,060 customers in Q1 and 5,003 customers in Q2. The slower pace of new customer adds in Q2 was expected to be due to the introduction of free editions of the company cloud products.

Some of the new customers added during the quarter include pharmaceutical company Zentiva, investment management software provider Enfusion, Dutch medical device company Cassini Technologies, fusion power research company TAE Technologies, London-based foreign exchange execution system provider BidFX, global business advisory firm FTI Consulting, and pharmaceutical pricing transparency non-profit International Horizon Scanning Initiative.

Customers have also been using its products to navigate a COVID-19 world. St. Jude’s Children Research Hospital rapidly expanded use of Confluence and Jira to help employees track and prioritize work. The United Nations set up a public Trello board to share resources and help businesses respond to COVID-19. Frontline Foods, the grassroots organization raising funds from the community to support local restaurants, turned to Trello and Confluence to power meal delivery efforts to frontline health care workers responding to the COVID-19 crisis.

In its Letter to Shareholders, Atlassian also announced that it has $2.1 billion in total cash and short-term investments on its balance sheet and generated $156.3 million in cash flow from operations and $140.3 million in free cash flow. It added 359 new employees in Q3, with approximately 200 added in March alone. It is focused on hiring more employees in the quarters ahead.

Over its nearly 20-year history, Atlassian has followed a business model that provides it the financial flexibility to capitalize on opportunities that arise in difficult environments. Specifically, it is focused on furthering its cloud transition, hiring, investing in R&D, acquiring customers, and strengthening its long-term market position through potential M&A. Atlassian’s long-term goal is to engage 100 million active users and it would look at acquisitions that would help achieve this goal.

Atlassian’s stock is trading at $154.59 with a market capitalization of $37.94 billion. It touched a 52-week high of $158.98 in February this year. It hit a 52-week low of $106.11 in October last year.

This segment is a part in the series : Cloud Stocks

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