Since its 2015 debut, tech firm Atlassian (TEAM -9.56%) has found success selling its team collaboration and project management software. The company's stock has also seen its share of success, going from an IPO price of $21 per share to as high as $458 a share in late 2021 (a 22x increase). It currently trades around $188 (a 9x increase).
Atlassian stock slumped over the past 20 months or so on concerns about further interest rate hikes. This price drop has some investors wondering if Atlassian stock has run its course. Atlassian management's stated goal is "to build a company that thrives over the next 100+ years." If Atlassian can achieve that objective, its stock could make for an excellent long-term investment.
Let's dig into the company's financials to see if it makes sense to pick up shares while they trade at a significant discount.
Atlassian's success to date
In its quest to create a sustainable business that lasts for more than a century, Atlassian management set a long-term goal of reaching $10 billion in annual revenue. In its fiscal 2023 (ended June 30), Atlassian managed to reach sales of $3.5 billion, a 26% increase from fiscal 2022. As the chart below shows, the company has a streak of rising revenue years.
Data by YCharts.
Atlassian's revenue growth is directly tied to its steadily growing customer base. The company acquires customers using a freemium pricing model, where clients can try a basic version of an Atlassian product for free, and then upgrade to a paid version if and when they want additional features.
I've used several Atlassian products in my career, including its flagship Jira project management platform to manage my team's software projects. These tools proved indispensable for efficiently planning and executing our work. That kind of stickiness in its products enables Atlassian to retain customers once they've signed up.
Its customer acquisition model has proven successful. Atlassian exited fiscal 2023 with around 260,000 customers, an increase from the prior year's 240,000.
Atlassian's continued growth potential
Atlassian management said its customer base still has plenty of room for expansion and it's targeting a potential client pool of more than 2 million businesses. The total addressable market (TAM) is estimated at $29 billion, according to Atlassian.
Atlassian is taking concrete steps to capture that TAM. These steps include growing its cloud-based offerings and extending its suite of software products beyond the company's IT industry roots to offer support for just about any type and size of business.
Atlassian's efforts to grow its cloud business make sense since the company generates the bulk of its revenue from that segment. In fiscal 2023, $2.1 billion of Atlassian's $3.5 billion in revenue came from its cloud solutions.
Other factors to consider with Atlassian stock
Although Atlassian's revenue is growing, the company remains unprofitable. In fiscal 2023, Atlassian reported a net loss of $486.8 million. Granted, many tech growth companies operate at a loss for years as they prioritize growth over profits. And in Atlassian's case, the losses are shrinking from year to year. In fiscal 2022, the company's net loss totaled $519.5 million.
Another positive sign is Atlassian's increase in free cash flow. The company ended fiscal 2023 with $842.5 million in free cash flow, up from the prior year's $750.5 million. In addition, Atlassian's balance sheet is solid. It exited fiscal 2023 with $2.1 billion in cash and equivalents on the books, an increase from the prior year's $1.4 billion, as part of its total $4.1 billion in assets. Total liabilities were $3.5 billion.
Atlassian's revenue growth is expected to continue. The company forecasts that fiscal 2024's first-quarter revenue will reach at least $950 million. That would be an 18% increase from the prior-year period's $807 million.
Right now, Atlassian is experiencing success despite a complex macroeconomic environment in which the federal funds interest rate is at its highest level in 22 years. Atlassian continues to increase year-over-year revenue by double digits, an indication that its strategy for growth is working. With the company's efforts focused on long-term, sustainable success that includes growing its total addressable market, Atlassian's stock has real potential to be a good long-term investment.
