Cloud Stocks: Atlassian Makes Over $100M in PaaS in 2020
I’m publishing this series to discuss a topic that I follow closely — cloud stocks, trends, strategy, acquisitions, and more. I like fundamentals-focused business building, and outline the principles of fundamentals-focused business building in my free Bootstrapping course.
Last week, Atlassian (NASDAQ: TEAM), a leading provider of team collaboration and productivity software, reported its second quarter results that surpassed estimates. Atlassian has been focusing on becoming a cloud-first company and recently announced a three-year migration path to the cloud for on-premises customers.
Second quarter revenue grew 23% to $501.4 million, ahead of the market’s forecast of $475 million. Adjusted EPS was $0.37, the same as last year and better than the market’s forecast of $0.32.
Net loss was $621.5 million, compared with net income of $124.1 million a year ago. Net loss spiked mainly due to a debt security charge of $539.1 million.
Cash and cash equivalents, and short-term investments at the end of Q2 2021 totaled $1.8 billion. Total employee headcount increased by 467 to 5,752 with the majority of the additions in R&D.
By segment, Subscription revenues grew 36% to $310.7 million, driven by cloud products as well as data center offerings. Maintenance revenues grew 12% to $131.3 million. Perpetual license revenue declined 24% to $22.1 million. Other revenues, which includes revenue from marketplace apps, increased 9% to $37.3 million.
Net new customers grew by 11,617 to 194,334 in Q2, driven by cloud products and an improved cloud customer experience. It added 8,620 customers in Q1.
For the third quarter, Atlassian expects revenues of $475-$490 million with an adjusted EPS of $0.20- $0.21. Analysts had estimated earnings of $0.25 per share on revenue of $472 million.
Atlassian’s New Offerings
In November 2020, Atlassian introduced Jira Service Management, which integrates initiatives such as service desk, incident management, real-time-communications, and asset and configuration management into one solution. This doubles its TAM from 45 million software team members to a 100 million technical workers including IT teams. These numbers sound very aggressive. I wasn’t aware that there are so many technical workers in the world.
Atlassian’s Shift to Cloud
Last quarter, Atlassian announced its plans to transition to a major shift to cloud. Atlassian announced the end of new server license sales beginning February 2, 2021 and the end of support for all server products as of
February 2, 2024. It introduced a robust migration program,
including tools, incentives, and customer support. For data center customers, Atlassian announced new capabilities and integrations that make it easier for cloud and data center products to work together. The cloud transition might be challenging for a couple of quarters, but it creates value over the long term.
I believe Atlassian has time and again proved its value, especially with its PaaS strategy. In fiscal year 2020, the Atlassian Marketplace generated over $400 million in purchases and revenue from the Marketplace apps was $103.5 million. It has over 25,000 third-party developers on the Atlassian platform and a network of over 500 solution partners. Click here to read more on the analysis of Atlassian’s PaaS strategy.
Atlassian is one of the very few companies to have a fully fleshed out PaaS strategy and there is a lot that other SaaS companies can emulate to win in PaaS. Read my recent article Which SaaS Players Will Win in PaaS to understand how to go about it.
Atlassian’s stock is trading at $247.54 with a market capitalization of $61.90 billion. In the past year, its stock has nearly doubled. Since going public four years ago, its market cap has zoomed from $6 billion to $57.6 billion. It touched a 52-week high of $250.03 in December and a 52-week low of $110.01 in March.
Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.
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