Atlassian (TEAM) Stock Trades Up, Here Is Why

Radek Strnad /
2024/05/02 3:12 pm EDT

What Happened:

Shares of IT project management software company, Atlassian (NASDAQ:TEAM) jumped 8.1% in the afternoon session after the company provided optimistic financial projections during its 2024 investor day session. Atlassian provided initial FY27 targets, including a 20% + revenue CAGR for FY'27, while maintaining >25% operating margins. This implies that the company will hit the $10B revenue mark within the next 5 years. The topline is expected to continue to benefit from the gradual migration to its cloud platform. For the first time, the company provided detailed revenue figures for its leading products. Jira software recorded annual revenue of $1.7B (with growth outpacing the overall revenue). Confluence revenue was pegged at $1B (in-line growth), and JSM (Jira Service management) came in at $600M. Overall, the guidance was promising and highlighted the abundant growth opportunity within the cloud space.

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What is the market telling us:

Atlassian's shares are very volatile and over the last year have had 18 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 6 days ago, when the stock dropped 11.9% on the news that the company reported first-quarter results with some challenges in the cloud business raising concerns. Management noted that paid seat expansion remained challenged due to continued softness in the SMB segment, which is in line with the trends observed in the previous quarter. 

On a brighter note, Atlassian blew past analysts' billings expectations this quarter. Its revenue and operating profit also outperformed Wall Street's estimates. Looking forward, while revenue guidance for the next quarter exceeded analysts' estimates, the company remained uncertain about the macro outlook.The cloud revenue forecast for the next quarter includes an expectation that current trends across all core growth drivers will persist into Q4 and that the rate of paid seat expansion in the SMB customer segment will remain challenged. 

There was big news not related to the financials, though. Co-CEO and co-founder "Scott Farquhar has made the decision to step down as co-CEO to spend more time with his young family, improve the world via philanthropy, and help further the technology industry globally." Co-founder Mike Cannon Brookes continues to lead Atlassian as CEO. Zooming out, the quarter was very good, the guidance was fine, but the market could be reacting to the leadership change.

Atlassian is down 18.1% since the beginning of the year, and at $185.60 per share it is trading 27.9% below its 52-week high of $257.43 from January 2024. Investors who bought $1,000 worth of Atlassian's shares 5 years ago would now be looking at an investment worth $1,702.

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