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Atlassian Up 36% in a Year: Should You Buy, Sell or Hold the Stock?
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Atlassian (TEAM - Free Report) shares have gained 35.9% in the past year, underperforming the Zacks Computer Technology sector, Zacks Internet Software industry and the S&P 500’s return of 40.3%, 48.4% and 36%, respectively.
Given Atlassian's reputation as a leader in the enterprise collaboration and workflow software space, this underperformance is disappointing. This raises a crucial question for investors: Is it the right time to buy, hold or sell Atlassian stock?
Atlassian Suffers From Sluggish Growth
Atlassian’s sales growth has been continuously slowing down in the post-pandemic era. In the last two fiscals, it had posted revenue growth in the low-to-mid 20s percentage range compared with mid-30s percentage range growth in fiscal 2022.
TEAM’s forecast for second-quarter fiscal 2025 and the consensus estimate for the upcoming two fiscals indicate a further deceleration in revenue growth. For the fiscal second quarter, it anticipates revenues between $1.23 billion and $1.24 billion, indicating year-over-year growth of 16-17%. The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues indicates a year-over-year increase of 16.6% and 19%, respectively.
Another near-term headwind for the stock is rising research and development (R&D) costs, driven by increased investment in artificial intelligence to enhance its product capabilities. In the last reported financial results for first-quarter fiscal 2025, its non-GAAP R&D expenses soared 33.9% year over year compared with revenue growth of 21.5%. Increased R&D expenses negatively impacted profitability, with non-GAAP operating margin contracting 40 basis points.
Atlassian’s decelerating customer growth rate makes us increasingly cautious about its near-term prospects. The company’s customers have witnessed a CAGR of 14.7% between fiscal 2020 and 2024, much lower than the 30% CAGR it registered between fiscal 2016 and 2020.
Atlassian One Year Performance
Image Source: Zacks Investment Research
TEAM Faces Macroeconomic Headwinds
Atlassian’s near-term prospects might be hurt by softening IT spending. Enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues. This does not bode well for Atlassian’s prospects in the near term.
Although Atlassian has long been a strong contender in the collaboration and workflow software space, the market has continuously been crowded by industry leaders like Broadcom (AVGO - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) , Salesforce and IBM.
Atlassian’s JIRA software matches solutions like Broadcom’s Rally Software, Microsoft’s Azure DevOps Server and IBM’s Rational. TEAM’s Confluence product competes with Salesforce Chatter and Alphabet’s Google Apps for Work.
Intensifying competition could force Atlassian to resort to competitive pricing to safeguard its market share. This will ultimately affect its profitability.
Cloud and Digital Transformation Trend Aids TEAM
Not everything is gloomy for Atlassian given its position as the global leader and innovator in the enterprise collaboration and workflow software space. The company is poised to grow given the rising demand for automated and improved communication systems within organizations.
Furthermore, the company will benefit from the ongoing digitalization of work from organizations and the rapid adoption of cloud services. According to a Mordor Intelligence report, the global enterprise collaboration market is likely to reach approximately $90.6 billion by 2028 from $54.5 billion in 2023, indicating a CAGR of 10.7%.
Atlassian is currently focused on selling more subscription-based solutions. This unique business model is helping the company in generating stable revenues while expanding margins. Subscription-based service is a high-margin business as the incremental cost to add a user declines as the company’s user base increases. Subscriptions have been the company’s fastest-growing segment, which has witnessed a CAGR of more than 43% between fiscal 2020 and fiscal 2024.
What Investors Should Do With TEAM Stock
Atlassian’s position as the leader in the enterprise collaboration and workflow software space is likely to aid its growth amid the rising demand for automation and improved communication software. Its strategy to sell subscription-based services will continue to improve the company’s top line.
However, Atlassian’s near-term prospects might be hurt by softening IT spending amid ongoing macroeconomic uncertainties. The decelerating sales and customer growth rate also make us increasingly cautious about its near-term prospects. Aggressive investments in R&D to boost product offerings and capabilities might dampen its margins.
Image: Bigstock
Atlassian Up 36% in a Year: Should You Buy, Sell or Hold the Stock?
Atlassian (TEAM - Free Report) shares have gained 35.9% in the past year, underperforming the Zacks Computer Technology sector, Zacks Internet Software industry and the S&P 500’s return of 40.3%, 48.4% and 36%, respectively.
Given Atlassian's reputation as a leader in the enterprise collaboration and workflow software space, this underperformance is disappointing. This raises a crucial question for investors: Is it the right time to buy, hold or sell Atlassian stock?
Atlassian Suffers From Sluggish Growth
Atlassian’s sales growth has been continuously slowing down in the post-pandemic era. In the last two fiscals, it had posted revenue growth in the low-to-mid 20s percentage range compared with mid-30s percentage range growth in fiscal 2022.
TEAM’s forecast for second-quarter fiscal 2025 and the consensus estimate for the upcoming two fiscals indicate a further deceleration in revenue growth. For the fiscal second quarter, it anticipates revenues between $1.23 billion and $1.24 billion, indicating year-over-year growth of 16-17%. The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues indicates a year-over-year increase of 16.6% and 19%, respectively.
Another near-term headwind for the stock is rising research and development (R&D) costs, driven by increased investment in artificial intelligence to enhance its product capabilities. In the last reported financial results for first-quarter fiscal 2025, its non-GAAP R&D expenses soared 33.9% year over year compared with revenue growth of 21.5%. Increased R&D expenses negatively impacted profitability, with non-GAAP operating margin contracting 40 basis points.
Atlassian’s decelerating customer growth rate makes us increasingly cautious about its near-term prospects. The company’s customers have witnessed a CAGR of 14.7% between fiscal 2020 and 2024, much lower than the 30% CAGR it registered between fiscal 2016 and 2020.
Atlassian One Year Performance
Image Source: Zacks Investment Research
TEAM Faces Macroeconomic Headwinds
Atlassian’s near-term prospects might be hurt by softening IT spending. Enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues. This does not bode well for Atlassian’s prospects in the near term.
Although Atlassian has long been a strong contender in the collaboration and workflow software space, the market has continuously been crowded by industry leaders like Broadcom (AVGO - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) , Salesforce and IBM.
Atlassian’s JIRA software matches solutions like Broadcom’s Rally Software, Microsoft’s Azure DevOps Server and IBM’s Rational. TEAM’s Confluence product competes with Salesforce Chatter and Alphabet’s Google Apps for Work.
Intensifying competition could force Atlassian to resort to competitive pricing to safeguard its market share. This will ultimately affect its profitability.
Cloud and Digital Transformation Trend Aids TEAM
Not everything is gloomy for Atlassian given its position as the global leader and innovator in the enterprise collaboration and workflow software space. The company is poised to grow given the rising demand for automated and improved communication systems within organizations.
Furthermore, the company will benefit from the ongoing digitalization of work from organizations and the rapid adoption of cloud services. According to a Mordor Intelligence report, the global enterprise collaboration market is likely to reach approximately $90.6 billion by 2028 from $54.5 billion in 2023, indicating a CAGR of 10.7%.
Atlassian is currently focused on selling more subscription-based solutions. This unique business model is helping the company in generating stable revenues while expanding margins. Subscription-based service is a high-margin business as the incremental cost to add a user declines as the company’s user base increases. Subscriptions have been the company’s fastest-growing segment, which has witnessed a CAGR of more than 43% between fiscal 2020 and fiscal 2024.
What Investors Should Do With TEAM Stock
Atlassian’s position as the leader in the enterprise collaboration and workflow software space is likely to aid its growth amid the rising demand for automation and improved communication software. Its strategy to sell subscription-based services will continue to improve the company’s top line.
However, Atlassian’s near-term prospects might be hurt by softening IT spending amid ongoing macroeconomic uncertainties. The decelerating sales and customer growth rate also make us increasingly cautious about its near-term prospects. Aggressive investments in R&D to boost product offerings and capabilities might dampen its margins.
Considering all these factors, we suggest investors to hold this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.