Atlassian (TEAM) is heading into 2024 with steady momentum in its cloud business and new generative AI capabilities added to its team collaboration software products.
Investors clearly like what they’re seeing at Atlassian, as the stock, recently trading around $241, has advanced 33% since the company in early November reported solid fiscal Q1 (Sept.) results. Last week, a new 52-week high was reached at $248. Atlassian stock, up 87% YTD, looks pricey at the moment, with the enterprise value at 14.7 times the FY’24 (June) consensus revenue estimate of $4.15 billion (representing growth of 17%).
In FQ1, Atlassian reported top-line growth of 21%. Total revenue of $977.8 million beat the consensus estimate of $965.3 million. Subscription revenue of $851.9 million (87% of total revenue) rose 31%, driven by cloud revenue growth of 27% (at the high end of the guidance range) and 42% growth in data center revenue. The company now has more than 265,000 paying customers. Operating margin of 23% easily beat the guide of 19.5%. Free cash flow totaled $163 million (17% margin).
Atlassian’s cloud revenue in FQ1 represented 62% of total revenue. The number of users migrating to the cloud over the past year is up nearly 50%. Customers are increasingly adopting the Premium and Enterprise editions of cloud products thanks to a steady stream of innovation and new enterprise-grade capabilities. Atlassian has 40,103 customers with more than $10,000 in cloud annual recurring revenue (ARR), up 18% year over year. This customer cohort represents over 75% of total cloud ARR.
The data center unit (representing 25% of total revenue) continues to perform well, driven by strong renewals, migrations from the server product and seat expansions with existing customers. In 2024, Atlassian is retiring the server product, with support ending in February. Over time, the data center business will fuel more migrations to the cloud.
Partners continue to be an important part of the overall go-to-market motion. In FQ1, Atlassian expanded its partnerships with PwC and Deloitte to help power sales to existing accounts and bring in new logos. The Accenture partnership formed last year is already off to a strong start. There are now more than 1,000 channel partners that drive about 40% of Atlassian’s total revenue, with cloud sales from this group advancing nearly 2x over the past year.
Atlassian has been enhancing its product portfolio with new AI technology. Atlassian Intelligence offers various AI capabilities that help users boost productivity and harness organizational data for actionable insights. Atlassian Intelligence can quickly draft pages of content, summarize content, automate routine tasks via natural language requests and easily provide relevant assistance.
Virtual agents are now available to Jira Service Management customers, enabling IT and HR teams to provide always-on conversational support at scale. A built-in AI engine analyzes intent, context, sentiment and profile information to personalize each interaction. Answers are then dynamically generated from internal sources such as articles, onboarding material and FAQs.
When necessary, the virtual agent can escalate the conversation to a human expert. With the help of advanced assignment and routing capabilities, case resolutions are expedited. Human support agents now benefit from AI capabilities powered by Atlassian Intelligence that reduce the number of manual tasks. When a case transitions to a new agent, a concise summary of all conversations and recommendations from previous interactions provides a seamless hand-off.
In late November, Atlassian completed its $975-million acquisition of Loom, a video messaging platform with more than 25 million users worldwide. Founded in 2016, Loom has more than 200,000 customers. Loom’s business users record nearly 5 million videos a month.
In the current distributed workforce environment, Atlassian expects Loom to elevate the collaboration experience for teams. Customers will be able to insert videos directly into key workflows in Jira and systems of record in Confluence. Use cases include engineers visually logging issues in Jira, leaders using videos to connect with employees at scale, sales teams sending tailored video updates to clients and HR teams onboarding new employees with personalized welcome videos.
For FQ2 (Dec.), Atlassian expects total revenue of $1.01 billion to $1.03 billion, in line with the consensus estimate. Cloud revenue is expected to be up 25.5% to 27.5%, with data center revenue growth of 33%. Operating margin is expected to be 21%.
For FY’24 (June), Atlassian maintained its cloud revenue growth outlook of 25% to 30%. The company now forecasts FY’24 data center revenue growth of 31%, up 100 basis points from the previous guide.
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