Atlassian (TEAM)

Is -58% in Q1 and one of the worst performers on the S&P. Investors view AI as a threat to their business. TEAM last reported a beat and raise. That said, TEAM is too risky to buy.

The market in indiscriminately selling off all software names without understanding their business model or opportunities with AI. Software is a sticky product because companies don't want to spend too much time thinking about it. Enterprise software companies are using AI to upgrade their products and improve cost structures as well. Investors forget that.

Is -42% this year but just reported a good beat and raise quarter, but the street didn't like its R&D spending. Earnings growth is expected at 30% this year, but trades at a cheap 20x PE. AI is a real threat, but he thinks long-term and not immediate.

Down 33.4% last year. AI has shaken the entire business software industry. CRM is better.

Faces the same problem as other software companies, that there's a feeling that AI can create the same product as theirs.

A pick for growth. Good take up right now from a very recent $160 due to a good and surprising earnings report. It's going to be volatile, so make it only a 3-4% position. You'd want to get out around $240. No dividend.

Software for enterprise business and technical teams, not for retail consumers. Very nichy. One of the co-founder CEOs stepped down over the summer. He's watching carefully to see how it performs under the sole CEO.

EPS of 89c beat estimates of 62c. Revenue of $1.18B beat estimates by 8%. EBITDA was strong at $339M vs $229M expected. Atlassian could keep winning share as enterprises consolidate providers amid a tough IT-spending environment. The company's broad solutions and investment in artificial intelligence may keep powering double-digit growth momentum. Client softness in net additions might not see a reversal in short order, yet early adoption of Atlassian Intelligence -- 10% of its client base is already on the service -- may keep driving upselling. An overall improvement in the economy might boost customer additions and seat expansion gains, though this might happen more toward the end of the calendar year. Atlassian's May 1 investor day will likely emphasize upselling opportunities from AI-based capabilities and potential margin expansion. Investors post-release have focused on slower-than-expected user growth, and of course the resignation of the co-CEO. Both are a bit concerning, but likely reflected in the valuation now. We still think it is a decent company overall, with a good niche. It is expensive, and momentum may take it a bit lower. But we would still see it as worth holding. 
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TEAM reported Q2 EPS of $0.73 per share, beating estimates of $0.63 per share. Revenue did beat estimates of $1.02B, coming in at $1.06B and diplayed growth of 21.5% year-over-year. Q3 guidance called for revenue between $1.09B-1.11B, beating the forecast of $1.07B. Subscription revenue was $932 million, an increase of 31% year-over-year. Full-year cloud revenue growth is estimated to be between 28.5% and 30.5% on a year-over-year basis, while Data Center revenue growth is estimated to be approximately 36.0%. The results and guidance look pretty solid, but there were several reports of large insider sell transactions which could explain why shares dropped. We think TEAM is a hold right now following a solid Q2 and good guidance. 
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Provides solutions to enhance productivity in tech. A great total addressable market. They just a company, a video-messaging platform (like Zoom), which will enhance their overall business. Can buy now, $177 and $167 in tranches.

The price target is $201.50. He took some profits. They provide software to enhance/assist developers who produce apps. Likes it. Are profitable in software, and have cornered the developer side. Wants to get back into this in the low-$190s or lower.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.

EAM is now trading at 12x times' Price/Sales. 
In the 4Q, TEAM’s revenue grew 27% to $872.7M, beating estimates of $866M and EPS of $0.45 beat estimates of $0.33. 
The balance sheet is strong, with long-term debt (excluding leases) of $999M. 
Total debt is around 1.2x times trailing twelve-month cash flow of $850M, and cash flow declined a bit around 4% compared to $884M last year. 
The company also announced a share repurchasing program of $1B over the last few years. 
The company did give out guidance for FY 2023, with revenue growth of 25%, and an operating margin of 17% on a non-GAAP basis. 
The company beat on all metrics but management did mention the reduced cloud guidance, as they see weakness in the cloud driven by free-to-paid conversions of new customers worsening in the quarter in continuing that in the near future. Unlock Premium - Try 5i Free