Atlassian's (NASDAQ:TEAM) Q1 Earnings Results: Revenue In Line With Expectations But Stock Drops 25.1%

Jabin Bastian /
2022/11/03 4:22 pm EDT

IT project management software company, Atlassian (NASDAQ:TEAM) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 31.4% year on year to $807.3 million. However, guidance for the next quarter was less impressive, coming in at $845 million at the midpoint, being 3.93% below analyst estimates. Atlassian made a GAAP loss of $13.7 million, improving on its loss of $400.1 million, in the same quarter last year.

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Atlassian (TEAM) Q1 FY2023 Highlights:

  • Revenue: $807.3 million vs analyst estimates of $806.4 million (small beat)
  • EPS (non-GAAP): $0.36 vs analyst expectations of $0.38 (6.25% miss)
  • Revenue guidance for Q2 2023 is $845 million at the midpoint, below analyst estimates of $879.5 million
  • Free cash flow of $75.9 million, down 60.9% from previous quarter
  • Customers: 249,173, up from 242,623 in previous quarter
  • Gross Margin (GAAP): 82.7%, down from 84% same quarter last year

“We are proud of our Q1 results, growing subscription revenue 50 percent year-over-year, and we continue to have line of sight to $10 billion in annual revenue,” 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 $459.5 million in Q1 FY2021, to $807.3 million.

Atlassian Total Revenue

And unsurprisingly, this was another great quarter for Atlassian with revenue up 31.4% year on year. On top of that, revenue increased $47.5 million quarter on quarter, a very strong improvement on the $19.3 million increase in Q4 2022, and a sign of acceleration of growth.

Guidance for the next quarter indicates Atlassian is expecting revenue to grow 22.7% year on year to $845 million, slowing down from the 37.3% 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 28.1% 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 249,173 customers at the end of the quarter, an increase of 6,550 on last quarter. That is a little slower customer growth than last quarter but quite a bit still above what we have typically seen over the last year, suggesting sales momentum is coming off slightly after a stronger quarter.

Atlassian Customers

Key Takeaways from Atlassian's Q1 Results

With a market capitalization of $43.9 billion, more than $1.52 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see Atlassian deliver strong revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and there was a slowdown in customer growth. Overall, this quarter's results were not the best we've seen from Atlassian. The company is down 25.1% on the results and currently trades at $130.3 per share.

Atlassian may have had a tough quarter, but does that actually create an opportunity to invest 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.

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