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3 Things I'm Watching When This SaaS Juggernaut Reports Thursday

By Brian Stoffel – Apr 28, 2020 at 8:13AM

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They won't be covered in the headlines. But all three are still very important.

Since the onset of COVID-19, there's one stock I've invested the most money in. It will be reporting earnings on Thursday. And while everyone is focused on headline numbers like revenue and earnings, I'll be focused on three lesser-known metrics. 

That company is software-as-a-service (SaaS) juggernaut Atlassian (TEAM -0.82%). Atlassian is the engine helping vast workforces switch to remote working. More than that -- as I highlighted last month -- the breadth of Atlassian's offerings gives it a key advantage as this transition takes place.

Cartoons of people working in desks, chairs, in hammock, and in window

Image source: Getty Images.

Before we start, we'll tackle an obvious question: Yes -- whether or not Atlassian meets earnings and revenue figures will likely drive the stock's movement in the short term. For the record, analysts estimate the company will report earnings of $0.21 per share on $396 million in revenue.

But we're long-term investors here at The Motley Fool, and I think these three factors are much more important.

Customer count

At the end of the day, there are two forces that will keep Atlassian growing: Adding more new customers, and getting existing customers to add new services. I'm very curious to see how things changed for the former during March.

For context, here's Atlassian's historical customer count going back a few years.

Chart of Atlassian's customer count over time

Chart by author. Data source: Atlassian IR.

Remember, the numbers above represent quarterly -- not annual -- growth. While some of this has grown via acquisition, it's still impressive. What I'd like to know is this: Did Atlassian see a boost higher than last year (4% sequential growth) or last quarter (3% sequential growth)? Because this is a subscription company, those gains don't automatically show up on the income statement.

If Atlassian's customer count tops 171,000, that would be enormously positive. On the flip side -- if it falls short -- that wouldn't at all be a deal breaker. It would simply warrant further investigation.

What's the Marketplace?

Like many SaaS companies, Atlassian benefits from a wide moat via high switching costs. It's not hard to understand if you just think about it for a minute. It takes time, money, and effort to train an entire workforce on a collaboration platform. Switching is not only costly, it's a pain in the rear.

What makes Atlassian particularly attractive as an investment is that it benefits from a secondary moat -- the network effect. The company's Atlassian Marketplace is where third-party (not Atlassian-employed) app developers can build tools and sell them to current Atlassian customers.

As more third-party developers join the platform, more companies are enticed to use Atlassian. And as more customers sign on, third-party app developers are incentivized to build on the Marketplace. It's a virtuous cycle.

During the last quarterly release, we found out that:

  • There were 4,000 total apps available on Atlassian Marketplace.
  • 60% of Jira Software and Confluence customers use at least one app.

The company released its new Forge platform for development last year, so I'm very curious to see how that might have changed these numbers.

What's the outlook?

Finally, I want to know what management sees for the year ahead. Normally this isn't a huge area of interest. But these are not normal times. As it is, the effects of COVID-19 might have only been felt for the tail end of the company's quarter.

Before this all happened, the company forecasted that its 2020 fiscal year (which ends in June) would show:

  • Revenue of $1.59 billion to $1.60 billion
  • EPS (non-IFRS) of $1.03 to $1.09
  • Free cash flow of $475 to $485 million

While these numbers are important, listening to the conference call will likely yield much more valuable insights. What is management noticing in the business world? How are they adjusting their approach as a result of COVID-19?

As a shareholder of Atlassian, I believe that focusing on these three things will help me filter out the short-term noise and focus on the long-term signals that truly drive investment returns.

Brian Stoffel owns shares of Atlassian. The Motley Fool owns shares of and recommends Atlassian. The Motley Fool has a disclosure policy.

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