Atlassian (TEAM +5.44%) shareholders are likely anxious to get a fresh start in this new year. Shares of the Australian software provider dropped more than 75% at one point during the bear market as investors turned negative on money-losing tech stocks.
The stock has made a modest comeback since its November lows, but it may be too early to tell whether the move in the SaaS stock was a bear market rally or the beginning of a recovery. That uncertainty leads to questions about what will happen to Atlassian stock over the next 12 months.
Let's take a closer look.
The state of Atlassian
Investors may be more familiar with the company's software than Atlassian itself. Products such as Jira, Confluence, and Trello have made the software giant a leader in the enterprise software space.
Admittedly, enterprise software is a competitive business. Its products place it in competition with Microsoft, ServiceNow, Broadcom, and many others. Nonetheless, those companies tend to specialize in software that serves specific types of businesses. Atlassian is different. Its software packages can manage a variety of business issues, ranging from delivering medical services to delivering pizza.
These capabilities have helped take its customer count above 200,000. The company also boasts more than 4 million community members and over 5,000 apps on its marketplace.
But like numerous tech stocks, it saw the stock gains from the 2020-2021 bull run evaporate entirely by the end of 2022. Moreover, Atlassian has struggled to earn profits throughout its history, a factor that probably prompted further selling in the 2022 bear market.
NASDAQ: TEAM
Key Data Points
Atlassian's current financial condition
Amid the stock price decline, the company has offered a mixed financial picture. The good news is that revenue continues to grow. Revenue levels do not quite match the 58% gain of fiscal 2022 (which ended June 30). However, they came in at $651 million for the first quarter of fiscal 2023 (which ended September 30), a 50% increase.
Still, it also reported an operating loss during that time. High levels of stock-based compensation contributed to the 53% increase in operating expenses. Even with $29 million in unrealized investment gains, the company's net loss was $14 million.
The stock-based compensation is a negative for more than just the losses. Paying the stock-based compensation could put pressure on Atlassian to dilute its stock. Fortunately, with more than $1.5 billion in liquidity, it possesses the resources to cover such costs.
Additionally, investors may feel the selling is overdone. Even though Atlassian stock has fallen over the last year and a half, it has risen more than 30% since reaching a low last fall.
Furthermore, its price-to-sales (P/S) ratio has reached its lowest level in nearly seven years in recent months and now stands at 13. That level is low by historical standards, but still makes its stock more expensive than most of its peers, a factor that could make some investors hesitant to add Atlassian shares.
TEAM PS Ratio data by YCharts
Atlassian in one year
As a company, Atlassian should grow its revenue over the next year. But with regards to its stock, it may take more for Atlassian to recover in 2023.
Indeed, customers will likely continue to turn to its enterprise management software. And Atlassian can sustain its current pace of losses even if profitability does not come soon.
Still, the stock has already risen by over 30% since early November. And in light of its high P/S multiple and the costs of its stock-based compensation, investors may find the shares of competitors more appealing in the near term.
