Atlassian (NASDAQ:TEAM) Surprises With Q1 Sales But Stock Drops 11.8%

Anthony Lee /
2023/11/02 4:23 pm EDT

IT project management software company, Atlassian (NASDAQ:TEAM) reported Q1 FY2024 results beating Wall Street analysts' expectations, with revenue up 21.1% year on year to $977.8 million. The company also expects next quarter's revenue to be around $1.02 billion, slightly below analysts' estimates. Turning to EPS, Atlassian made a non-GAAP profit of $0.65 per share, improving from its profit of $0.36 per share in the same quarter last year.

Is now the time to buy Atlassian? Find out in our full research report.

Atlassian (TEAM) Q1 FY2024 Highlights:

  • Revenue: $977.8 million vs analyst estimates of $965.3 million (1.29% beat)
  • EPS (non-GAAP): $0.65 vs analyst estimates of $0.54 (21.1% beat)
  • Revenue Guidance for Q2 2024 is $1.02 billion at the midpoint, below analyst estimates of $1.02 billion
  • Free Cash Flow of $163.3 million, down 39.6% from the previous quarter
  • Gross Margin (GAAP): 81.8%, down from 82.7% in the same quarter last year

“Our R&D engine continues to deliver incredible innovation and value to customers. We launched Compass, our new developer experience platform that helps increase developer productivity, and AI-powered virtual agent capabilities in Jira Service Management to help support teams provide lightning-fast service at scale, along with a host of other features powered by Atlassian Intelligence,” said Mike Cannon-Brookes, 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.

Project Management Software

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 strong over the last two years, growing from $614 million in Q1 FY2022 to $977.8 million this quarter.

Atlassian Total Revenue

This quarter, Atlassian's quarterly revenue was once again up a very solid 21.1% year on year. On top of that, its revenue increased $38.7 million quarter on quarter, a very strong improvement from the $23.6 million increase in Q4 2023. This is a sign of acceleration of growth and great to see.

Next quarter's guidance suggests that Atlassian is expecting revenue to grow 16.9% year on year to $1.02 billion, slowing down from the 26.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 16.5% over the next 12 months before the earnings results announcement.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. See it here.

Key Takeaways from Atlassian's Q1 Results

With a market capitalization of $45.9 billion, a $2.24 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Atlassian has the resources needed to pursue a high-growth business strategy.

It was encouraging to see Atlassian narrowly top analysts' revenue expectations this quarter. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its gross margin decreased. For the full year, cloud revenue growth was reaffirmed and operating margin guidance was raised. However, next quarter's soft revenue outlook seems to be weighing on shares. Overall, the results could have been better. The company is down 11.8% on the results and currently trades at $160 per share.

So should you invest in Atlassian right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here.

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 50% 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 in this report.