Microsoft reports today and although we don’t talk about the company as an investment on this board, I think their report will be the first real insight we get into the current state of Enterprise Cloud and SaaS which many of our companies compete in.
I’m expecting a strong report, but I’m not sure it will matter much over the short term. However, it will help paint the long term picture.
I take that back, Atlassian already reported a strong quarter which is a good sign.
“I take that back, Atlassian already reported a strong quarter which is a good sign.”
Atlassian reported and since then it has dropped 18% vs 5% for the broader Nasdaq Composite.
In my opinion, the short term response of the stock does not indicate the strength of the quarter for the business. Their numbers were strong.
“In my opinion, the short term response of the stock does not indicate the strength of the quarter for the business. Their numbers were strong.”
I totally agree with you. I use JIRA daily, and I have used them for more than 10 years. Prior to Greenhopper, prior to Confluence, prior to Bitbucket, prior to the plugin marketplace (or plugins, for that matter). It is a core competency of my job, and I have administered on-prem and cloud deployments. Atlassian is a great company and a great business.
I would go further. Sometimes the valuation of a company has no connection to the quality of its business. I think it’s pretty uncontroversial to say DCF is basically correct. The problems come in accurately predicting out a reasonable period of earnings, terminal growth rate, and the discount rate. But let’s posit that you go to http://www.moneychimp.com/articles/valuation/dcf.htm and plug in $1 for ttm eps, 40% projected growth rate, and leaving all others with defaults. You get an implied P/E of ~40.
Now change that to 30% projected growth. You have an implied P/E of ~28. A company is still a great business if it grows at 30% for 5 years, but the stock’s current value is now 30% lower.
Even more unfair, leave the 40% projected growth, but change the discount rate to 13%. Company is executing just as well, but discount rate changes. Now the implied P/E is ~32 and their present value is 20% less.
This is is obviously oversimplified as a model. But the point is that even high growth stock valuations are quantifiable, and a lot is based on projections that are highly volatile and not entirely under the control of the companies themselves. The fact TEAM’s down this much is something that worries me (their end market is largely software companies, and they will be a proxy for future demand for other direct and indirect suppliers to that industry, many of which people on this board are also invested in).