Opinions
Kim Bolton
Atlassian
TEAM-Q
PAST TOP PICK
Oct 23, 2024
Stock price when the opinion was issued
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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
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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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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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.
(Analysts’ price target is $216.00)