This article is proudly sponsored by Lake Region State College!
About Atlassian
While it sounds like the name of a fancy boat, we don’t think it actually is.
“Ah, yes, darling, let us stroll over to the port and stretch the legs of our forty-footer by the name of Atlassian, how splendid that would be.”
Yeah, we don’t think we are really all that funny either.
Although that might have been one of our stranger introductions to a stock analysis article, at least it was memorable and at least we are going to be diving headfirst into one of the youngest yet most prominent software players in the world, Atlassian, which, as a sort of fun fact, was founded in 2002 by two students at the University of New South Wales in Sydney, Australia.
Crikey, mate.
It is no secret that we have done our fair share of work on other software as a service (SaaS) companies and operators, ranging from the customer relationship management (CRM) segment to the data and cloud observability corner of software as well as in the cybersecurity space as well, however, while Atlassian is a SaaS company itself, it is a little different than those we have analyzed in previous articles.
Primarily, it is a platform through which essentially any type of organization, whether a nonprofit or a Fortune 500 corporation, can better streamline its operations, making projects and the completion thereof and tracking of deadlines considerably easier, acting as a sort of centralized dashboard for teams to use to track the status of projects, from the small ones to the largest of the large.
The primary revenue engine for Atlassian is its in-house primary software platform package by the name of Jira Software, which essentially handles all of the tasks listed above in the previous paragraph, not to mention that the company’s Jira-specific clientele include the likes of digital illustration platform Canva and other major companies such as Dish Network, Zoom, Rockwell Automation, Redfin, Domino’s, the United States Department of Defense (DOD), NASA, NCR, Rent the Runway, Roblox, Sun Life, Toast, Twitter, the United States Space Force, the Yale School of Management, Arizona State University and so many others, also wanting to mention that Jira isn’t Atlassian’s only source of revenues, as it maintains, hosts and operates other software as a service tools such as Confluence, Trello and Bamboo, including many others that can be found on the company’s website.
At the end of the day, Atlassian is a software platform that makes it incredibly easy for teams of all sorts, shapes and sizes to collaborate and ultimately get what they need to get done, well, done, and track deadlines and quantify progress in the process.
As a sort of general following note, Atlassian makes money in the same fashion as most other software as a service platforms, and that is through the sale of software subscription packages and the licensing of its in-house products.
Given that we have never analyzed a company exactly like this one before, allow me to briefly highlight some of the company’s largest and fiercest direct competitors, as the list includes the likes of GitHub (owned by Microsoft), ServiceNow, Slack (owned by Salesforce), Zendesk and even including a competitor in the east (at least, relative to the United States), Tel Aviv, Israel-headquartered monday.com.
We hope you learned a little something and we hope you’re ready to learn a lot more about our featured software as a service guest of the hour, Atlassian.
Atlassian’s stock financials
In getting the show kicked off, Atlassian is a $53.43 billion company (according to its current market capitalization), trading at a share price of $207.05 along with not a price-to-earnings (P/E) ratio nor an annually issued dividend presently offered to its shareholders at the time of this publication, all of which initially makes sense as we have seen time and time again that younger software as a service companies (and even mature ones for that matter) hardly ever distribute any sort of dividend to its shareholders due to the inherent cash drain and strain it would impose on the company’s overall operations and its growth, as these companies truly innovate daily in order to simply remain relevant, as software has become and unequivocally remained a brutally competitive industry.
With respect to the company’s price-to-earnings ratio, or quite literally, its lack thereof, we presume it to be the case that Atlassian doesn’t have any positive earnings to display given the aforementioned intensity of investment required to innovate, let alone keep the operation itself alive through the inevitable period of cash burn, thus, we aren’t going to be losing any sleep over these initial figures, as they are really just commonplace at this point within the specialty software playground.
Regarding the most recently reported condition of the company’s balance sheet, Atlassian’s executives are in charge of tending to and acting as fiduciaries of its $4.1 billion in terms of total assets along with its $3.4 billion in total liabilities, which is certainly far from being a terrible overall balance sheet breakdown given that this (as we understand it, but we will confirm momentarily) growing collaborative workspace software company is likely growing its revenues on a year-over-year (YOY) basis, at a brisk pace at that, and yet it has still remained total asset-heavy, keeping it largely out of (but not completely, as is the case with practically any company) overleveraged or subsequently, bankruptcy territory, also seemingly employing some debt financing which is just usually a byproduct of being a growing technology company.
Moving right over to the company’s income statement, Atlassian’s total annual revenues (measured since 2019) have surely been growing, confirming our initial assumption, starting at a base of just about $1.2 billion in 2019, rising each of the following years to its latest reported annual revenue figure of just over $3.5 billion, as reported in mid-2023, which is great to see, but also to largely be expected for a younger SaaS company, especially as an emerging leader within the collaborative category which it serves.
We aren’t trying to sound like or be party poopers, but where would we be if we weren’t honest?
Onto the state of the company’s cash flow statement, it can be found that Atlassian has incurred some notable net income losses, standing negative each and every year between (and including) 2019 and 2023, specifically ranging between -$606 million (2019) and -$346 million (2020), which, no doubt about it, equates to some fairly sizable net income bleed, however, the silver lining in this is the fact that the company’s accompanying total cash from operations (during the same time period) were reported as being positive, ranging between $466 million (2019) and $868 million (2023), implying that while this company is still burning a hole in its pocket on a net income basis, it has thankfully been able to generate some much needed cash through its business operations, even if it is not comparably (with respect to revenues) not all that much.
Nevertheless, we certainly need to see some sort of headway in the realm of net income bleed, as we have seen other SaaS companies make progress in this respect yet it seems as though Atlassian, at least over the last handful of years, has stalled out a bit in this regard, and needs to trim down some of its expenses and really improve upon these figures, not merely slap a Band-Aid on this wound.
Atlassian’s stock fundamentals
Speaking of wounds, or at least points of weakness for this specialty software company, TD Ameritrade’s platform has Atlassian’s trailing twelve month (TTM) net profit margin listed as -13.63% to the industry’s respective average of -4.40%, which is both good and bad in the sense that Atlassian’s TTM net profit margin isn’t terribly far off from the industry’s listed respective average but not as good in the sense that the industry’s average is still negative and the company’s is objectively more negative or presently worse off than the industry, again, on average.
Frankly, while this is a consideration, it would be fair to say that the workflow SaaS space is still relatively immature and developing and growing at a rapid rate, especially when one considers the newfound possibilities with artificial intelligence, thus, the negative TTM net profit margin figures makes some degree of sense, and while we would usually offer the benefit of the doubt and project that as Atlassian continues growing and establishing its market share, it will likely continue beefing up its TTM net profit margin, however, incorporating the company’s recent net income situation, we are simply not so sure and don’t feel as confident in making that assumption.
The bottom line is that we need to see some progress within the next three to five years in terms of the company’s TTM net profit margin, primarily through the hewing down of its net income losses.
Lastly, as it relates to the company’s TTM returns on both assets and investments, Atlassian’s figures (also found on TD Ameritrade’s platform) are well off the mark once again, for instance, with its TTM return on investment standing in the deep end at -24.96% to the industry’s respective average of 17.34%, which, to a degree, makes sense given how old (or young, really) Atlassian is (relatively new company, but we say “relatively” a bit loosely in this context, candidly, being that it has still been around for a little more than twenty years) and the space in which it operates, not to mention all of the operations it has recently put into place that, if they succeed and generate outsized returns, will naturally take some time to see and quantify the fruits of their labors.
All things considered, however, this is still not the prettiest picture, as it can also be found that the company’s listed TTM return on assets is as low as -13.55% to the industry’s respective average of a much better 12.55%.
Should you buy Atlassian stock?
With a far better picture of this company developed, we just are not presently excited about Atlassian.
While its balance sheet is in good overall standing, its revenues have been growing on a year-over-year basis and its total cash from operations have been positive during the same time period as well, its hemorrhaging on the basis of net income and it is also really, really far off from the industry’s averages with respect to its TTM net profit margin, return on investment and return on assets metrics.
Simply put, we personally need to see this company make meaningful progress with its net income losses not just within the next year or so, but for the more intermediate and long runs, moving closer and closer to breaking even or even perhaps breaking into positive territory, as right now, since we have yet to see any meaningful, quantitative improvement, we just don’t think the haze is worth venturing too deep into, not to mention its recent share price run-up which we personally view as being a byproduct of the rise of other SaaS companies due to the furtherance of excitement surrounding artificial intelligence, mindlessly raising the valuation of Atlassian in the process.
Therefore, we feel most comfortable offering this company’s stock (NASDAQ: TEAM) a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.