Atlassian (NASDAQ:TEAM) Beats Q1 Sales Targets But Stock Drops 11.8%

Full Report / November 02, 2023

IT project management software company, Atlassian (NASDAQ:TEAM) reported Q1 FY2024 results exceeding 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.

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

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.

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,

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.

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 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.


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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 81.8% in Q1.

Atlassian Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its recent drop, Atlassian still has an excellent gross margin that allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Atlassian's free cash flow came in at $163.3 million in Q1, up 115% year on year.

Atlassian Free Cash Flow

Atlassian has generated $929.8 million in free cash flow over the last 12 months, an impressive 25.1% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.

Key Takeaways from Atlassian's Q1 Results

Sporting a market capitalization of $45.9 billion, more than $2.24 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Atlassian is attractively positioned to invest in growth.

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.

Is Now The Time?

When considering an investment in Atlassian, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

There are several reasons why we think Atlassian is a great business. While we'd expect growth rates to moderate from here, its revenue growth has been solid over the last two years. Additionally, its impressive gross margins indicate excellent business economics, and its bountiful generation of free cash flow empowers it to invest in growth initiatives.

Atlassian's price to sales ratio based on the next 12 months of 10.8x indicates that the market is definitely optimistic about its growth prospects. Looking at the tech landscape today, Atlassian's qualities stand out, and we like the stock at this price.

Wall Street analysts covering the company had a one-year price target of $225 per share right before these results, implying that they saw upside in buying Atlassian even in the short term.

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