Atlassian (TEAM) shares have been on the rise for the fifth consecutive session, although they are still down nearly 28% year-to-date. The stock recently traded at $171.66, after hitting a 52-week low of $152.34 last week, which marked a 41% decline from the 52-week high of $258.69 in late January. Investors are concerned about Atlassian’s cloud growth potential in fiscal 2025, but the company is focused on long-term expansion initiatives.
During the Atlassian investor day last month, the management team outlined a plan to achieve more than $10 billion in annual revenue within the next five years. The company expects revenue for fiscal year 2024 to grow by 23.3% to $4.36 billion. Atlassian anticipates that total revenue over the next three years will increase at a compound annual growth rate of more than 20%, driven by various strategic initiatives such as cross-selling additional products, expanding in the enterprise sector, and leveraging artificial intelligence.
At the investor event, Atlassian management highlighted opportunities in three major markets: software development, service management, and work management. The company believes that these markets are becoming increasingly interconnected, positioning Atlassian to bring together technical and business teams effectively. With a total serviceable addressable market (SAM) estimated at $67 billion and growing at a rate of 13% annually, Atlassian is confident in its future growth potential.
Atlassian’s three largest products—Jira, Confluence, and Jira Service Management—currently drive 75% of total revenue. Jira, with $1.7 billion in annual revenue, is growing faster than the overall business, while Confluence, with $1 billion in annual revenue, is growing in line with the company’s overall performance. Jira Service Management, generating approximately $600 million in annual revenue, is the fastest-growing among Atlassian’s at-scale products.
Despite the solid financial results reported in the fiscal Q3 earnings report in late April, Atlassian shares have been struggling, down 13% since the release of the report. In the March quarter, total revenue increased by 30% to $1.189 billion, surpassing the consensus estimate of $1.1 billion. Subscription revenue grew by 41% to $1.071 billion, driven by growth in annual and multi-year contracts. Operating margin of 27% exceeded expectations, while EPS of 89 cents beat the consensus by 27 cents.
Looking ahead to the fiscal Q4 forecast, Atlassian anticipates total revenue between $1.12 billion and $1.135 billion, exceeding the consensus estimate of $1.11 billion. Cloud revenue is expected to increase by 32%, with data center revenue forecasted to grow by 40% to 42%. The company has also made significant progress in scaling its enterprise business in the cloud, with the goal of shifting the cloud mix towards more lucrative enterprise customers. Despite the current challenges facing the stock price, Atlassian remains optimistic about its long-term growth prospects and strategic initiatives.
