Atlassian (TEAM)

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Every month or so, I swing by our public library, grab the Investor Business Daily paper, and glance at the IBD list of their top 50 stocks. One stock that has been on the list for awhile, that I didn’t know much about is Atlassian Corporation (TEAM). The company’s website: www.atlassian.com.

What is TEAM?
Atlassian Corporation is an Australian enterprise software company that develops products for software developers, project managers, and content management. From their website: “Atlassian unleashes the potential in every team. Our products help teams collaborate, build software and serve their customers better. Over 112,000 large and small organizations use Atlassian’s tracking, collaboration, communication, service management and development products to work smarter and deliver quality results on time. Our products serve teams of all shapes and sizes, in virtually every industry, and include Jira, Confluence, Stride, Trello, Bitbucket and Jira Service Desk.”

On January 18, 2018 the following was the highlights for Q2:
Quarterly revenue of $212.6 million, up 43% year-over-year
Quarterly IFRS operating margin of (7%) and non-IFRS operating margin of 21%
Quarterly free cash flow of $67.8 million

Recent Business Highlights:
• Customer growth: Atlassian ended the second quarter of fiscal 2018 with a total customer count on an active subscription or maintenance agreement basis of 112,571, having added 4,825 net new customers during the quarter.
• Atlassian Marketplace: With more than 3,500 apps designed to enhance Atlassian products, the Atlassian Marketplace is one of the largest enterprise app stores. It continues to see excellent growth and surpassed a new milestone during the quarter, with more than $350 million in lifetime sales since its inception in 2012.

I opened a small position to help me more closely follow the company. I hope you find this overview helpful!
TracyK

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Always meant to do some research on them. Seems like I hear more about them as time goes on; We used Jira at my previous employer and but don’t have much knowledge outside of that software.

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We use JIRA at my work. A lot.My daughter is applying for PM jobs in SF and she says most of the job postings ask for that skill.

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You might want to google on
site:http://discussion.fool.com/sauls-investing-discussions Atlassian
or TEAM
or Editas
or Crispr

Since both companies have been discussed here before.

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I had taken a position in it at around 26. I was expecting a double in 3 years. It more than doubled in one :-).

The reasons why I like the stock:

  1. I love their products (well a lot of it) and most people who use it seem to have a positive view of it. I use it both internally and externally.
  2. Products are extremely sticky. Once an organization has its data in it, it is very very hard to move over.
  3. They have no sales force ! Product sales on it’s own. Very impressive for an enterprise software company.
  4. It is likely an acquisition candidate (I believe Microsoft or may be Google will be very interested).
  5. There is lot of optionality in the business. They started with collaboration tools for developer teams, but are moving beyond their core developer base.

They are pricey. More so on a EV/Sales basis. But EV/Cash flow is more apt to guage them. They are pricey on EV/cash flow basis too, but cash flow can scale very very fast from this point (It really is up to the management to how much they want to scale development expense).

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The last time TEAM was brought up it was at or close to their IPO, not enough market history for my liking. This thread has provided some Lynchian type references by people who have some contact with their products. These comments suggest that the products have persistence and stickiness which is what one should look for because they make good moats, a.k.a. “high switching costs.”

Researching the company another interesting point is that they have done a considerable number of acquisitions. From a stock price perspective this leads to fast growth and high CAGR – until the music stops, but that can be a long time in the future.

3) They have no sales force ! Product sales on it’s own. Very impressive for an enterprise software company.

This is a huge plus, it’s much cheaper to be an order taker than a seller!

Denny Schlesinger

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3) They have no sales force ! Product sales on it’s own. Very impressive for an enterprise software company.

This is a huge plus, it’s much cheaper to be an order taker than a seller!

Thinking about joining the TEAM I had a look at their earnings report and got a surprise. Their Marketing and sales expenses are quite hefty, and higher in 2017 than the previous year and their Operating loss is growing as well!


All figures percent of total revenue
**TEAM                           Three Months Ended   Six Months Ended** 
 **12/31/17  12/31/16  12/31/17  12/31/16**
Total revenues (12)              100.0%    100.0%    100.0%    100.0%
Cost of revenues (1) (2)          20.3%     18.1%     20.5%     17.3%
Operating expenses:                
Research and development (1)      47.7%     46.8%     48.3%     48.0%
**Marketing and sales (1) (2)       21.1%     18.4%     22.2%     18.3%**
General and administrative (1)    18.1%     18.5%     18.3%     19.0%
Total operating expenses          86.9%     83.7%     88.8%     85.4%
Operating loss                    -7.2%     -1.8%     -9.3%     -2.7%

I’ll pass for now.

Denny Schlesinger

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I’ve heard only good things about their products, including a testimonial from my better half. They have great revenue growth ~40%, 98% customer retention of meaningful customers, and 82% of their revenue is reoccurring.

3) They have no sales force ! Product sales on it’s own. Very impressive for an enterprise software company.

They do have sales, but they tout it as being a small percentage of revenue. They also tout having high R&D expenses.

Speaking of expenses, the big red flag for me is since Q3 of 2016, their expenses have outpaced their revenue growth by an (un)healthty amount.

I took a small position a while back, but haven’t had the urge to dip in any further. I’d like to see some proof that their big R&D spend will translate into revenue growth before I add more.

https://investors.atlassian.com/financials-and-filings/inves…

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Atlassian sales model is famously non traditional, low over head non frictional. From what I understand they do not have traditional sales reps, only product advocacy groups. More on it:

https://insights.nextworldcap.com/top-sales-lessons-learned-…

Atlassian is famous for spurning conventional wisdom and growing huge without traditional sales reps, utilizing instead a self-service model plus customer success teams…

Both Atlassian and Zendesk started with models of purely inbound sales, and built fast-growing businesses despite not having the traditional sales army. How? In order to rely solely on inbound sales, both Atlassian and Zendesk saw “reducing friction” on the customer prospect as a primary objective for their product road maps, and that enabled a low-touch sales process.

A sales and marketing process that is too complex?—?for the customer to get educated on the value, evaluate and try the product, and get started?—?will necessitate heavy sales rep involvement to guide prospects through. In contrast, build your product as if you can’t have that heavy sales rep involvement, and you’ll be forced into a radical simplification of the product design and sales process.

At Zendesk, Amanda explained how once they had this low-touch, higher velocity process running, they could easily add in traditional Sales and Marketing functions to supplement (rather than fix) the sales process. Similarly, the zero-touch customer prospect model at Atlassian led to an organization with non-traditional roles—most famously, “product advocacy” groups that interacted with customers as support arms as opposed to standard sales roles.

https://blogs.gartner.com/derry-finkeldey/2015/12/03/living-…

Is Atlassian the ideal “customer-driven” sales organization? There has been a lot of talk about Atlassian, “the great Australian hope” of technology IPOs and the fact that they have managed to grow to several hundred million in revenues and a customer base of 50,000 organizations without hiring a single sales person. And…they’ve been profitable for the last ten years. That’s pretty impressive when you consider that according to a recent filing with the SEC, Atlassian spent around 25% of revenues on sales and marketing in FY15. Compare that to around 52% by Zendesk (not profitable) and 51% by Salesforce.com (also not profitable) and other “born in the cloud” providers.

https://www.bloomberg.com/news/articles/2016-05-18/this-5-bi…

On growth by mergers and acquisition:

Most of their growth is organic. The last big acquisition I recollect was Trello. Trello was a wildly successful project management software - used also for individual and school projects - with a huge customer base (mostly free). They acquired it for increasing stickiness of their existing products and introducing premium versions to cross sell to their huge customer base.

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Denny,
This is very helpful - thanks for posting, Denny. ~TracyK

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https://www.investors.com/research/the-new-america/atlassian…

Atlassian’s Collaborative Software May Change Future Of The Office

Social media has changed the way we socialize and interact with friends, dating apps have changed how we find love, and money sharing apps have changed the way we split bills at restaurants.

But the way we work — by sending emails with Microsoft (MSFT) PowerPoint, Word or Excel attachments and waiting for responses — is stuck in the past.

Atlassian (TEAM) is looking to propel the office into the future with its project-management and collaborative software as more companies take advantage of cloud-based technology and remote work spaces.

“Really, what Atlassian is doing is trying to address how a world might look post-Microsoft Office,” said Rob Oliver, a senior research analyst at Baird. “Their revolutionary product addresses this big problem — how to collaborate effectively in teams. It’s no accident their stock ticker is TEAM.”

I do believe working with emails for team collaborative efforts is being stuck in the past. Once you have worked with the more modern tools - confluence, Stride, Slack (Competitor to Atassian’s Stride and better than Stride but more pricey), you cannot go back.

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