Atlassian (NASDAQ:TEAM) Posts Better-Than-Expected Sales In Q2 But Stock Drops 10.8%

Radek Strnad /
2023/02/02 4:18 pm EST
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IT project management software company, Atlassian (NASDAQ:TEAM) reported Q2 FY2023 results topping analyst expectations, with revenue up 26.7% year on year to $872.7 million. The company expects that next quarter's revenue would be around $900 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Atlassian made a GAAP loss of $205 million, down on its loss of $77.4 million, in the same quarter last year.

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Atlassian (TEAM) Q2 FY2023 Highlights:

  • Revenue: $872.7 million vs analyst estimates of $849.4 million (2.73% beat)
  • EPS (non-GAAP): $0.45 vs analyst estimates of $0.29 ($0.16 beat)
  • Revenue guidance for Q3 2023 is $900 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $146.4 million, up 92.8% from previous quarter
  • Customers: 253,177, up from 249,173 in previous quarter
  • Gross Margin (GAAP): 82.1%, down from 83.2% same quarter last year

“We closed out 2022 with quarterly revenue of $873 million, up 27% year-over-year, driven by subscription revenue growth of 40% year-over-year,” said Scott Farquhar, Atlassian’s co-founder and co-CEO.

Founded by Australian co-CEOs Mike Cannon-Brookes and Scott Farquhar in 2002, Atlassian (NASDAQ:TEAM) provides software as a service that makes it easier for large teams of software developers to manage projects, especially in software development.

The future of work requires teams to collaborate across departments and remote offices. Project management software is both driving this change and benefiting from it. While the trend of collaborative work management has been strong for a while, the Covid pandemic has definitively accelerated the demand for tools that allow work to be done remotely.

Sales Growth

As you can see below, Atlassian's revenue growth has been very strong over the last two years, growing from quarterly revenue of $501.3 million in Q2 FY2021, to $872.7 million.

Atlassian Total Revenue

This quarter, Atlassian's quarterly revenue was once again up a very solid 26.7% year on year. On top of that, revenue increased $65.3 million quarter on quarter, a very strong improvement on the $47.5 million increase in Q1 2023, which shows re-acceleration of growth, and is great to see.

Guidance for the next quarter indicates Atlassian is expecting revenue to grow 21.5% year on year to $900 million, slowing down from the 30.2% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 21% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Atlassian reported 253,177 customers at the end of the quarter, an increase of 4,004 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Atlassian Customers

Key Takeaways from Atlassian's Q2 Results

Sporting a market capitalization of $43.5 billion, more than $1.67 billion in cash and with positive free cash flow over the last twelve months, we're confident that Atlassian has the resources it needs to pursue a high growth business strategy.

It was good to see Atlassian outperform Wall St’s revenue expectations this quarter. On the other hand, it was unfortunate to see the slowdown in customer growth. Overall, it seems to us that this was a mixed quarter for Atlassian. The company is down 10.8% on the results and currently trades at $162.5 per share.

Should you invest in Atlassian right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.