Stock story –
IT project management software company Atlassian (NASDAQ:) reported better-than-expected revenue in the third quarter of 2024, with revenue up 21.5% year over year to $1.19 billion. The company expects revenue next quarter to be around $1.24 billion, close to analyst estimates. Non-GAAP earnings of $0.77 per share were also 19% above analyst consensus estimates.
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Atlassian (TEAM) Q3 CY2024 Highlights:
- Gain: $1.19 billion vs. analyst estimates of $1.16 billion (2.8% better)
- Custom EPS: $0.77 vs. analyst estimates of $0.65 (19% better)
- Adjusted operating result: $268.1 million vs. analyst estimates of $220.9 million (21.4% better)
- Revenue guidance for Q4 CY2024 is $1.24 billion in the middle, about in line with what analysts expected
- Cloud revenue guidance for Q4 CY2024 is a growth of 27% year on year, above expectations
- Increased sales forecast for the entire year for Cloud (24% of 23%) and Data Center (20.5% of 20%)
- Gross margin (GAAP): 81.7%, in line with the same quarter last year
- Operating margin: -2.7%, in line with the same quarter last year
- Free cash flow margin: 6.3%, compared to 36.5% in the previous quarter
- Invoices: $1.09 billion at the end of the quarter, up 16.3% year over year
- Market capitalization: $49.65 billion
Company Overview Atlassian (NASDAQ:TEAM), founded in 2002 by Australian co-CEOs Mike Cannon-Brookes and Scott Farquhar, provides software as a service that makes it easier for large teams of software developers to manage projects, especially in software development .
Project management software
The future of work requires teams to collaborate across departments and remote offices. Project management software drives and benefits from this change. While the collaborative work management trend has been strong for a while, the Covid pandemic has definitely accelerated the demand for tools that allow work to be done remotely.
Sales growth
Assessing a company’s long-term performance can provide insight into business quality. Any company can achieve short-term success, but a top company can continue to grow for years. Fortunately, Atlassian’s 26.7% annualized revenue growth over the past three years has been solid. This is a good starting point for our analysis.
This quarter, Atlassian reported robust year-over-year revenue growth of 21.5%, and revenue of $1.19 billion exceeded Wall Street estimates by 2.8%. Management currently expects a 16.7% year-over-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 16% over the next twelve months, a slowdown from the past three years. This projection is still admirable and shows that the market is seeing success with its products and services.
Invoices
In addition to revenue, billings are a non-GAAP metric that sheds additional light on Atlassian’s business quality. Billings is often called “cash revenue” because it shows how much money the company has collected from customers in a given period. This differs from revenue, which must be recognized in parts over the term of a contract.
Over the past year, Atlassian’s billings growth has been impressive, with an average increase of 25.8% year-over-year and an increase of $1.09 billion in the last quarter. This alternative revenue measure has been growing faster than revenue, meaning the company is collecting cash up front and then recognizing revenue over the life of its contracts – a boost to liquidity and future revenue prospects.
Customer acquisition efficiency
Customer acquisition cost payback period () measures the months it takes a company to recoup the money spent acquiring a new customer. This metric helps assess how quickly a company can break even on its sales and marketing investments.
Atlassian is extremely efficient at acquiring new customers and the CAC payback period was four months this quarter. The company’s efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving it the freedom to invest resources in new growth initiatives while maintaining options.
Key takeaways from Atlassian’s third quarter results
It was good to see Atlassian exceeding analyst revenue expectations this quarter. We were also pleased that gross margin improved. Looking ahead, expectations were strong, with next quarter cloud revenue growth of 27% year-on-year, strong and above expectations. The company also raised its full-year revenue guidance for cloud and data centers. There were questions about revenue momentum, especially for Cloud revenue, so this quarter puts a big dent in the bear case scenario. Overall, this was a very solid quarter. The stock rose 15.7% to $218 immediately after the results.
