Last week, Atlassian shares hit a new all-time high at $182.60. Photographer: Karen Dias/Bloomberg
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The COVID-19 pandemic is likely to have a long-lasting effect on how work is conducted. As Work From Home develops into more of a long-term trend, it will increase the need for various tools to help people interact and stay productive remotely. Atlassian (TEAM), a provider of workforce collaboration and productivity software, is one top vendor empowering remote teamwork.
Atlassian stock has advanced 45% YTD versus a loss of 1.3% for the Nasdaq Composite. Last Friday, the shares hit a new record high of $182.60.
In FY’19 (ended June), Atlassian’s total revenue rose 37% to $1.21 billion. For FY’20, the consensus estimate calls for revenue of $1.59 billion, representing solid growth of 31%.
Atlassian provides the necessary tools to enable all types of workers, regardless of their physical location, to perform their jobs more efficiently and effectively. The company now has more than 171,000 paying customers, and usually adds anywhere from 5,000 to 7,000 new paying accounts each quarter. In addition, Atlassian has 150,000+ organizations on Starter licenses/subscriptions, representing a large pool of potential paying customers.
Atlassian’s core Jira Software product enables users to plan, track and ship projects. Confluence lets users create, collaborate and organize content associated with projects. Various best-practice templates within Confluence make it easy for users to quickly get started on new projects. Trello, a project management application for non-techies, has more than 50 million registered users. Jira and Trello are Atlassian’s primary “land” products for new accounts.
In fiscal Q3 (ended March), Atlassian’s total revenue rose 33% to $411.6 million. While the company is delivering healthy top-line growth at scale, it’s doing even better when it comes to subscription revenue (including cloud products), which expanded 47% in the latest quarter and accounted for 59% of total revenue. Maintenance revenue, the second-largest component (29% of total revenue), rose 21% thanks to high renewal rates and strong pricing.
In the middle of March, Atlassian made all of its flagship cloud products available for free to small teams of up to 10 people. Atlassian wants as many organizations as possible to experience its team collaboration solutions, with the hope that many of the small initial deployments will eventually turn into fully paid engagements. Integrations with key software products (such as Slack and Zoom) are available.
The free-access program is a key piece of Atlassian’s customer acquisition engine at the low end, while the indirect partner channel is a major force when it comes to engaging with potential enterprise accounts. For the largest organizations, Atlassian uses a direct-sales team. Global 2000 accounts are becoming a bigger part of the business, with Atlassian winning more enterprise-wide deployments. The one main difference at the enterprise level is customization.
Atlassian has lots of growth runway in terms of adding new customers. There’s also plenty of potential in follow-on business into the installed base. Today, the company generates an average of $9,300 a year per customer. Morgan Stanley estimates that Atlassian could take that figure up to $17,000 by selling more products to existing customers. With the Confluence customer base at 60,000, this product alone is a key cross-sell launchpad.
Jira Service Desk is one example of a newer product that quickly gained traction. The solution is aimed at teams that need to collaborate on incident lifecycle management. Service Desk, an IT help desk tool, appeals to everyday users (a survey showed 42% of users were non-techies), so it has plenty of upside potential across the customer base. Today, Service Desk is a key expansion product, as only 15% of new cloud customers land with it.
In October 2018, Atlassian acquired Opsgenie, a modern incident management platform in the IT alerting space. The product, fully integrated into the Jira platform, now has a new user interface that aligns with other key Atlassian offerings. Opsgenie also features integrations with Microsoft Teams, Zendesk and Zoom. In its full first year, Opsgenie added 1,000+ new accounts.
Yesterday, Atlassian announced the acquisition of Halp, a start-up that offers solutions that turn Slack into an internal help desk. With Halp, users can create and track support tickets directly from a Slack message. Halp is already integrated with Jira Service Desk and Confluence.
The midpoint of Atlassian’s FQ4 revenue guidance range of $400 million to $415 million (below the consensus of $417.7 million) represents a sequential decline. The company isn’t immune to the current environment, as its broad set of customers means some exposure to smaller businesses. However, the diversity of the customer base helps, as does the fact that 90% of revenue comes from existing customers, with 85% of it recurring.
At recent prices, Atlassian’s forward revenue multiple stands at 27. Using the FY’21 consensus revenue estimate of $1.96 billion (representing growth of 23.2%), the valuation is still extended at 21.8.