Atlassian Q2 2023 Update

Atlassian (TEAM) recently reported their Q2 2023 results.

The primary metrics look pretty good. Revenue was up about 27% year-over-year. Cloud revenue grew 40% as the company continues to speed up hosted-to-cloud migrations, which doubled over last year's Q2. Remember, cloud customers are subscription customers, representing a more steady, reliable source of recurring revenue.

Another encouraging milestone was being named to Gartner's "Leader" quadrant in IT service management (ITSM) platforms. In our initial write up on the company, we identified JIRA Service Management as one of its biggest growth candidates, as it is geared more to enterprise customers and sells into a market worth $20 billion growing at 20% annually. So, to see such industry validation of Atlassian's primary ITSM offering is exciting. The product exceeded 45,000 customers in the quarter.

It is not all chocolate and roses here. Management noted a continuing slowing of paid seat expansion and hesitancy to upgrade from the free tier, particularly with small-to-medium size clients. Forecast growth for 2023 is 25%, which would be the firm's lowest annual growth figure since going public. In response, management called out its 3 main areas of investment going forward: cloud migrations, ITSM, and targeting larger enterprise customers.

Overall, Atlassian's quarter pretty much tracked with our model and there will be no change to the $200 fair value target. This one has performed very well for us so far, outpacing the market by 42%, but it looks a bit expensive to consider adding at this time (hence its slot into the Hold List).