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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’.

Russell Katz

Markets Writer

Russell Katz began his career as the youngest paid contributor in Seeking Alpha's history, focusing on the U.S. markets. Since moving to Australia, he has worked at the ASX and at a Sydney-based research house as the main analyst, covering over 300 ASX-listed companies in approximately two years. He started working for Stake in 2022, where he uses his U.S. and Aussie markets, and global macro expertise as a Markets Writer.


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