After attempting to stage a recovery over the last two months, the technology-focused Nasdaq 100 index appears to have resumed its decline deeper into bear market territory. The index has lost nearly 27% of its value year to date, but the losses in some individual tech stocks extend much further.
In some cases, that's an opportunity for investors to buy shares in high-quality companies at a discount. Atlassian (TEAM +1.26%) is one example, because it's experiencing accelerating growth right now and it's adding staff while many other organizations are cutting costs and shrinking their workforces.
Atlassian stock hit a 52-week low of $159.54 in May, and one Wall Street investment bank thinks it could soar to $430 in the next 12 to 18 months. The stock has already bounced to around $230, but that leaves plenty of upside on the table for investors who buy it now.
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Atlassian is unlocking rapid growth in the cloud
Atlassian was founded in 2002, long before most businesses were relying on the internet to run their global operations. But its software, like its flagship Jira platform, is now a staple for over 242,000 organizations. Jira was initially designed as a toolset to help developers more seamlessly deliver their own software projects, but it has evolved into a platform for entire workforces to collaborate across departments and across borders -- in fact, 46% of Jira users now aren't in technical roles at all.
Most of Atlassian's sales in its initial years were for on-premise products, which means businesses would buy the software, install it, and regularly update it as necessary. Now, more businesses are demanding cloud-based products that they can access online quickly and easily from almost anywhere, eliminating the need to constantly upgrade the software.
According to analysis by Atlassian, the cloud allows its customers to grow about 30% faster, and that's much to the company's benefit. Atlassian has determined that its cloud net expansion rate is currently over 130%, which means existing cloud customers are spending about 30% more right now than they were at the same time last year, and in some cases, it's as high as 40%.
Now the cloud makes up more than half of Atlassian's revenue and it's also one of its fastest-growing segments, with sales soaring 55% year over year in the recent fourth quarter of fiscal 2022 (ended June 30), accelerating from the 47% growth it delivered in the year-ago period.
The road to $10 billion in annual revenue
Atlassian has set a long-term goal to reach $10 billion in annual revenue, though it hasn't set a specific target date. The company believes there are 800,000 business customers who have technical teams and, therefore, fall into its addressable market, so there's a long runway for growth. But it's even longer when considering the 2.2 million global businesses that have at least 10 knowledge workers (including information technology specialists, strategists, and executives).
It implies Atlassian might have only penetrated a shade more than 10% of its addressable opportunity so far.
For the full fiscal 2022 year, the company generated $2.8 billion in total revenue, which represented 34% growth compared to fiscal 2021. If that pace keeps up, Atlassian could hit its $10 billion target within the next five years. Plus, it predicts growth in its cloud segment will remain at 50% per year for at least fiscal 2023 and 2024, and since 99% of new customers are signing up for cloud-based products, it bodes well for the company's future growth.
Atlassian isn't a profitable company yet because it has been investing heavily in expanding. In fact, even while several other technology companies have slashed the size of their workforce in recent months, Atlassian added 634 new staff in the recent quarter.
Still, the company is carefully managing its bottom-line losses during this challenging economic period. It generated significantly more revenue during fiscal 2022 compared to fiscal 2021, and its annual net loss actually shrunk to $614 million from $696 million.
Wall Street is on board with Atlassian stock
NASDAQ: TEAM
Key Data Points
There are currently 25 Wall Street analysts covering Atlassian stock, and not a single one recommends selling. The majority of them -- 16 analysts -- have given the stock the highest possible buy rating, while three maintain a bullish overweight rating, and the remaining six are neutral.
But investment bank Morgan Stanley is the most bullish on the Street, betting Atlassian stock could soar to $430 over the next 12 to 18 months. It represents an 85% upside from where it trades as of this writing and, if it gets there, would be a 169% gain from the stock's 52-week low set just four months ago.
With the sizable opportunity Atlassian is building toward, there's an argument for its stock rising even further than any analyst is predicting right now, over the long term.
