2233

Atlassian (NASDAQ:TEAM) Reports Bullish Q4, Provides Optimistic Guidance For Next Quarter


Full Report / July 29, 2021
Add to Watchlist

IT project management software company, Atlassian (NASDAQ:TEAM) reported Q4 FY2021 results that beat analyst expectations, with revenue up 29.9% year on year to $559.5 million. Atlassian made a GAAP loss of $213 million, improving on its loss of $385.2 million, in the same quarter last year.

Atlassian (TEAM) Q4 FY2021 Highlights:

  • Revenue: $559.5 million vs analyst estimates of $525.3 million (6.51% beat)
  • EPS (non-GAAP): $0.24 vs analyst estimates of $0.18 (32.2% beat)
  • Revenue guidance for Q1 2022 is $582.5 million at the midpoint, above analyst estimates of $541.2 million
  • Free cash flow of $164.2 million, down 54.4% from previous quarter
  • Customers: 236,118, up from 212,807 in previous quarter
  • Gross Margin (GAAP): 82.4%, down from 85% previous quarter

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

Atlassian’s software platforms such as Jira, Confluence, Trello and Bitbucket, help staff at diverse organisations manage, maintain and develop their technology stacks, as well as drive and track collaboration more generally. For example, Jira Core is a project and task management solution that anyone in an organization can use to plan, track, and report on projects, splitting each task up into multiple steps, and facilitating code review and testing. Meanwhile, Confluence provides a workspace on the cloud for individuals to collaborate on their projects and Bitbucket is used to store and deploy codebase.

Atlassian is somewhat remarkable amongst software companies for its low touch, or self-serve sales process. Although the company now has enterprise advocates to help its larger customers, it operated for many years by relying heavily on word of mouth marketing. With time, its ubiquity has become a strength, as so many technology workers have become accustomed to its products. Because Atlassian has a number of products, it has a wide array of competitors,

If software is eating the world, as Marc Andreessen says, then companies like Atlassian might be very well positioned to benefit, since they provide the software that software developers use to do their jobs.

Because Atlassian has a number of products, it has a wide array of competitors, even if a few of them offer an equally comprehensive suite. Notable competitors include Microsoft (NASDAQ:MSFT), which owns Github, a competitor to Jira, and Asana (NYSE:ASAN) which is arguably a competitor to Confluence and Trello.

Sales Growth

As you can see below, Atlassian's revenue growth has been strong over the last year, growing from quarterly revenue of $430.4 million, to $559.5 million.

Atlassian Total Revenue

This quarter, Atlassian's quarterly revenue was once again up a very solid 29.9% year on year. But the revenue actually decreased by -$9.19 million in Q4, compared to $67.3 million increase in Q3 2021. We'd like to see revenue increase each quarter, but a one-off fluctuation is usually not concerning and the management is guiding for growth to rebound in the next quarter.

Analysts covering the company are expecting the revenues to grow 13.3% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that Atlassian reported 236,118 customers at the end of the quarter, an increase of 23,311 on last quarter. That is quite a bit better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Atlassian Customers

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Atlassian's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 82.4% in Q4.

Atlassian Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great gross margin, that allows companies like Atlassian to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Atlassian's Q4 Results

Sporting a market capitalisation of $67.5 billion, more than $1.23 billion in cash and with positive operating 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.

We were impressed by the very optimistic revenue guidance Atlassian provided for the next quarter. And we were also excited to see it that it outperformed Wall St’s revenue expectations. On the other hand, it was unfortunate to see the deterioration in gross margin. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 6.78% on the results and currently trades at $285.1 per share.

Is Now The Time?

Atlassian may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Atlassian is a good business. We would expect growth rates to moderate from here, but its revenue growth has been strong, over the last two years. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its impressive gross margins are indicative of excellent business economics.

The market is certainly expecting long term growth from Atlassian given its price to sales ratio based on the next twelve months is 28.4. There is definitely a lot of things to like about Atlassian and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.