Under the Spotlight Wall St: Atlassian (TEAM)

First registered in 2001, Atlassian went on to prove technology belongs among Australia’s greatest exports. But despite reaching US$2.8b in revenue in FY22, growth has started to slow. Let's put this tech heavyweight Under the Spotlight.

Managing an organisation is more challenging than ever in an increasingly interwoven and complicated world. Leadership needs to ensure employees can access the files they need, create and complete work orders, collaborate frictionlessly, follow the master plan, and much more. All with suitable access controls: a 2021 report by the Analysis & Policy Observatory (APO) estimates the theft of trade secrets costs companies over US$200b annually.

Two Australians who met in university in 1998 saw an opportunity there. Three years later, ignoring the Dot-Com Bubble (see The Wrap: Bear Market Winners for more information), they’d register a technology company called Atlassian.

Two legs of a Titan

The name derived from the ancient Greek Titan Atlas, whose punishment was to hold up the sky for eternity. From day one, Atlassian was focused on alleviating the burden of workflow management through software. The company’s first product, called Jira, developed into four parts used by over 65,000 companies:

  • Jira Software – team planning
  • Jira Work Management – project management
  • Jira Service Management – team service and support applications
  • Jira Align – organisation planning

In 2003, a year after Jira, Confluence was released. It has since evolved into a collaborative platform to create, organise and discuss work projects and products. Today its information page claims over 75,000 customers – a growth of 25% compared to the 2020 estimate of 60,000 by saaslist.

As of FY22, Atlassian ($TEAM) has expanded its portfolio to include 12 other products, but an undisclosed majority of its revenue comes from Jira and Confluence.

The end of an era

That revenue – which went from US$1.6b in FY20 to US$2.8b in FY22 – is broken into three categories: ‘subscription’, ‘maintenance’ and ‘other’. The first one reflects a recent change in Atlassian’s sales focus, from perpetual contracts to subscriptions.

Perpetual contracts allowed for software to be used after the one-off purchase of a licence. They were discontinued in February 2022, which partly explains why subscription revenue has increased from 58% of the total in FY20 to 75% in FY22. Other factors are growth, and the decline in maintenance revenue (charges when support is needed) and other (covering things like the purchase of a new licence).

The next era

As Atlassian progresses its subscription model, its path isn’t smooth. Though revenue is growing, that growth rate is slowing. This could be expected as the company enters a more ‘mature’ stage, or it could be seen as a yellow flag.

Meanwhile, net loss has increased from US$351m in FY20 to US$614m in FY22. In their FY22 annual SEC report, management explains: ’The net loss was also attributable to our significant investments in research and development, and in technology infrastructure for our cloud offerings’. Indeed, Atlassian’s R&D costs went from US$559m to US$960m in that period. And they’re likely to keep rising as the company funnels most of its revenue growth into a shift towards the cloud – building infrastructure and developing new and existing products accordingly.

Software is a competitive space, and continued innovation is necessary. Atlassian claims to be a forward-looking company willing to make long-term investments, and is putting its money where its mouth is.

But shareholders would appreciate that the company doesn’t seem wholly dependent on those R&D efforts to stay in business. As Billions character Bobby Axelrod once said, ‘The greats never sacrifice the important for the urgent. They handle the immediate problem and still make sure to secure the future’.

This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.


Want more?

You know what to do

Insights, trends and company deep dives delivered straight to your inbox.

Stake logo
Over 7,000 5-star reviews
App Store logoGoogle Play logo

Subscribe to our free newsletters

By subscribing, you agree to our Privacy Policy.

Stakeshop Pty Ltd is registered as an overseas company in New Zealand (NZBN: 9429047452152), and is registered as a Financial Service Provider under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (No. FSP774414). We hold a full licence issued by the Financial Markets Authority to provide a financial advice service under the Financial Markets Conduct Act 2013. However, the content on this website has not been prepared to take into account any of your individual objectives, financial situation or needs. To the extent you require further information about the relevant New Zealand legislation that may apply, or require specific advice, please contact your legal and/or financial adviser (as appropriate). The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Terms & Conditions, Privacy Policy, Financial Advice Disclosure and Disclaimers before deciding to use or invest on Stake. By using the Stake website or service in any way, you agree to our Privacy Policy and Terms & Conditions All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake is a registered trademark under class 36 (New Zealand).

Copyright © 2024 Stake. All rights reserved.