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Clouds Stocks: Atlassian Fortifies its PaaS Ecosystem

Posted on Monday, Nov 2nd 2020

Atlassian, a strong PaaS player and among our list of the Top 20 Cloud Stocks for 2020, recently reported results of a strong quarter that beat estimates. It also announced the launch of a new venture fund that will further strengthen its ecosystem strategy.

Atlassian’s Financials

First quarter revenue grew 26% to $459.5 million, ahead of the market’s forecast of $440.5 million. Net loss was $21.6 million, compared with net income of $69.3 million a year ago. Adjusted EPS was $0.30, better than the market’s forecast of $0.27.

By segment, Subscription revenues grew 38% to $278 million and maintenance revenues grew 16% to $127.7 million. Perpetual license revenue declined 11% to $22.1 million. Other revenue which includes revenue from the Atlassian Marketplace increased 15% to $31.7 million. Total billings grew 22% to $483 million, ahead of market estimate of $469 million.

It ended the quarter with 182,717 customers, adding 8,620 net new customers during the quarter, over 95% of which chose its cloud products.

Atlassian ended the quarter with $2.2 billion in cash and cash equivalents, and short-term investments. It recently closed a $1 billion five-year senior unsecured delayed draw term loan and a $500 million five-year senior unsecured revolving credit facility.

For the second quarter, Atlassian expects revenue in the range of $460-$475 million with an adjusted EPS of $0.30 to $0.32. It expects to end the current year with revenues of $1.59-$1.6 billion and an EPS of $1.03-$1.09.

Atlassian’s Shift to Cloud

Atlassian is transitioning to a major shift to cloud. From February 2024, it will be ending support for all its on-premise server products such as Jira Service Desk Server, Bitbucket Server and Jira Software Server.

From February 2021, customers will not be able to purchase new server products. It has also increased prices of its on-prem products, with a view to discontinue them three years later. 

For the short-term, Atlassian expects greater variability in its outlook as it gauges the reaction of its 30,000 server customers to the end-of-life plans and associated on-premises price increases.

Atlassian’s PaaS Strategy: Platform or APIs

Atlassian introduced the Atlassian Marketplace in 2012. The online marketplace features thousands of apps created by a large and growing ecosystem of third-party independent vendors and developers.

Atlassian’s PaaS Strategy: Developer Community

Atlassian has over 25,000 third-party developers on the Atlassian platform and a network of over 500 solution partners. Atlassian takes a percentage of the revenue from apps in exchange for providing the e-commerce platform, handling taxes and billing, providing assistance in promoting the apps, and other benefits. Traditionally, this percentage has been 25% for every app listed, however, in April this year, it reduced this commission to 5% in the first year.

Atlassian’s PaaS Strategy: Marketplace and Metrics

Atlassian’s Marketplace has reached massive scale, recently surpassing $1 billion in lifetime sales. In fiscal year 2020, the Atlassian Marketplace generated over $400 million in purchases. Fees received for sales of third-party apps in the Atlassian Marketplace are reported in the Other segment.

Marketplace apps revenue was $103.5 million, $77.4 million and $53.1 million for the fiscal years 2020, 2019, and 2018, respectively.

In September, Atlassian announced the launch of Atlassian Ventures, a $50 million fund focused on strengthening its ecosystem. The fund will fuel early-stage companies building cloud apps for the Atlassian Marketplace, accelerate the growth of more established partners like InVision and Process Street. Atlassian Ventures recent investments include: Hipporello, a power-up that turns Trello into a service desk; Meetical, a meeting notes and calendaring extension for Confluence; and, a feature flagging and analytics platform.

The venture fund will also provide a platform for it to nurture startups that align with its strategy. Atlassian has in the last year acquired from its PaaS ecosystem companies such as Mindville, a Jira-centric enterprise asset management firm, and Halp, which uses messaging to convert Slack into an internal help desk solution for teams.

The market was jittery on the short-term effect of the sunsetting of servers. But what it should take into account is the continued strong execution of Atlassian as well as the launch of the venture fund which strengthens its PaaS ecosystem strategy.

Atlassian’s stock is trading at $191.62 with a market capitalization of $47.75 billion. It touched a 52-week high of $216.3 last week before the results. It hit a 52-week low of $110.01 a year ago.

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