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Atlassian: Outperformance Has Already Been Priced In

May 04, 2020 2:00 PM ETAtlassian Corporation (TEAM)4 Comments
Gary Alexander profile picture
Gary Alexander


  • Atlassian shares fell modestly after reporting Q3 results, despite beating Wall Street's expectations on the top and bottom line.
  • Prior to reporting, Atlassian had been trending near 52-week highs on expectations that the company's collaboration tools would see strong sales amid the remote work trend.
  • Though Atlassian continued a strong growth trajectory, the company decelerated in Q3 and expects to continue decelerating sharply into Q4.
  • Trading at an astronomical low-twenties revenue valuation multiple, Atlassian is unlikely to outperform the broader market.

Atlassian's (NASDAQ:TEAM) business model seems to have been perfectly built for the coronavirus crisis. Its suite of products, including its flagship JIRA software, are oriented around helping teams manage workflows and collaborate remotely, giving the company a boost in a time when many office workers around the globe have had to lean on digital collaboration tools often for the first time. In addition, Atlassian has long leaned more heavily on a "pull-in" sales strategy that didn't heavily employ high-touch sales executives. In a time when the coronavirus has hampered business travel and prevented software salesmen from making calls on their prospects, investors were right to assume that Atlassian's revenue base would be relatively less affected than other technology companies.

Yet after Atlassian reported third-quarter results, we can see that the stock's outperformance since the beginning of the year (+27% year-to-date, slightly edging out against Amazon's (AMZN) gains over the same timeframe) has already priced in some of this strength. And investors who were hoping that Atlassian's historical growth rates in the high 30s could sustain throughout the rest of the calendar year were disappointed when Atlassian forecasted a continuation of deceleration.

Data by YCharts

I admire Atlassian as a company with a market-leading product. Gartner Research, the leading software industry analyst and observer, has long rated Atlassian as one of the leaders in the enterprise planning and collaboration space, and its growth to >170k customers as of the end of Q3 at a ~20% growth rate reflects the sheer popularity of a product that doesn't rely on being pushed by a direct sales force.

But given all the love that investors have shown the stock this year, and the fact that it has vaulted to a >23x forward revenue multiple (versus valuation multiples in the high teens last year, and most other software companies

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

r_g_m profile picture
TEAM hit a 52 week high today as well as did NOW. Your historical data does not factor in what is going on now re this sector's product and services changes in response to the reality of more professionals in the tech industries working at home. Product software services changes are happening now, that's why these companies are experiencing new high stock prices.

You need to talk to those managers who are involved in making those changes to have a complete picture of what changes these companies are making. If you had listened to a few speeches that were made at several tech shows or to a few presentations for Wall Street analysts this year, you would have had a different recommendation.

Historical data only reflects the past and not the future for those companies who adapt their products to fit the future needs of their customers.
The market priced in all good news but no bad news. You think AMZN was not priced to perfection before COVID?
johnfairplay profile picture
So that 34 percent drop in the S&P was on good news?
johnfairplay profile picture
Certainly with today's 5 percent surge and all-time high, the stock is probably reasonably fairly valued. "Remote" or "at-home" work trends - and TEAM's place in them - bears close watching, however. I would guess the best-case scenario for that societal change has not yet been priced in.
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