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Why Atlassian's Stock Gained 17.4% in November

By Royston Yang - Dec 7, 2020 at 9:14AM

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The company is investing in collaboration apps as it targets strong growth in subscription revenue over the next two years.

What happened

Shares of Atlassian ( TEAM 1.13% ) gained 17.4% in November, according to data provided by S&P Global Market Intelligence.

The shares of the provider of team collaboration and productivity software are up 83% year to date and continue to scale new all-time highs.

Woman biting on pencil while looking at computer screen

Image source: Getty Images.

So what

Atlassian released a sparkling set of numbers for its fiscal 2021 first-quarter earnings. Revenue was up 26% year over year at $459.5 million, driven by the addition of more than 8,600 net new customers onto the company's cloud-based platform. Operating income was $11.9 million for the quarter, reversing from an operating loss of $4.6 million in the same period last year. 

The company had released Atlassian Ventures during the quarter, a $50 million venture fund that invests in collaboration apps that can add to Atlassian's already wide suite of service offerings. The aim is to continue to build up the company's ecosystem to make its platform more attractive and "sticky" for customers.

Atlassian has a strong track record of growing both its revenue and free cash flow, with a 37% compound annual growth rate (CAGR) for the former and a 51% CAGR for the latter. This consistent free cash flow generation has enabled the company to invest in research and development to enhance its offerings over the years.

Now what

During the company's recent Investor Day, it highlighted the importance of subscription revenue, with its cloud and data center products generating 45% and 15% of total revenue, respectively. In the next two years, Atlassian expects the growth in subscription revenue to hit mid-30% year over year as current customers migrate over to its new cloud-based platform. As migration will take three or more years to be fully completed, investors may notice some volatility in the company's revenue composition as it transitions over to the cloud.

Atlassian has also identified an annual addressable market worth $24 billion that is getting larger by the day. According to the IDC, the markets for global technical and knowledge workers is expanding at 9% per year and will provide more than sufficient opportunities for the company to tap on for further growth

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