Software companies grappled with an uncertain demand picture over the last 18 months. Businesses are carefully managing how much they spend on products and services as elevated inflation and rising interest rates crimp their finances.
But workplace collaboration specialist Atlassian (TEAM -9.56%) views this as an opportunity. It invested heavily in expanding its portfolio of software applications by ramping up development in-house, and also through acquisitions.
That means when the broader economic climate improves, Atlassian will be in a position to capture more revenue from its business customers than ever before. With its stock still trading 60% below its all-time high set during the 2021 tech frenzy, here's why now is a great time to buy in.
Atlassian is reshaping work with technology
Jira and Confluence are two of Atlassian's flagship products, and both are focused on helping employees collaborate within their organization. More than 265,000 businesses are using those software tools, and that number continues to grow each quarter.
Jira helps technical teams plan, manage, and ship software by allowing them to put all aspects of their project in one place, significantly improving visibility. Confluence, on the other hand, is a virtual workspace designed to help employees coordinate on critical decisions, share content, and centralize information.
Atlassian spent the last few years migrating its customers to cloud-based versions of Jira and Confluence because corporate workforces are increasingly global. By using the cloud, every employee can have the same live experience online, which boosts productivity and ensures everybody is up to date.
Atlassian is now building on that experience even further, thanks to its $975 million acquisition of video platform Loom in October. Loom will allow users to record their on-screen workflows and attach that content to tasks in Jira and Confluence. It will reduce the amount of time employees spend on collaborative phone calls and meetings because they can provide clear and powerful explanations alongside their work.
Atlassian also bought AirTrack in October, which is a small Australia-based data management platform provider. It helps businesses create a single source of truth across their complex IT infrastructure so that they can quickly fix bad data and respond to incidents. As organizations attempt to manage costs, AirTrack can help them track their usage across their digital assets, so this will be another key service offering for Atlassian.
Atlassian's growth is moderating
Businesses are exercising caution with their spending at the moment. That's hurting software providers like Atlassian, and it's showing up in the company's revenue growth.
In the fiscal 2024 first quarter (ended Sept. 30), Atlassian's revenue came in at $977 million, an increase of 21% year over year. It was a steep drop from the 31% growth rate it delivered in the prior-year Q1.
The company's cloud revenue, however, continued to outperform, jumping 27%. It now makes up almost two-thirds of Atlassian's total sales, compared to less than half just three years ago. Its continued growth is key to driving the company forward.
Plus, Atlassian's data center revenue continues to grow in excess of 40%. While it only accounts for one-quarter of the company's total revenue, the data center is a stepping stone to the cloud for large, complex organizations. Therefore, strong growth in that segment could be a precursor to accelerated cloud expansion in the future.
Image source: Getty Images.
Why Atlassian stock is a buy now
Atlassian continues to develop great products in-house, including several artificial intelligence (AI) features across its portfolio of software applications. AI now powers the editing tool in Jira and Confluence to help users refine their messaging, and it also allows them to search for issues using natural language instead of technical terms.
The technology is set to truly transform customer service. AI virtual agents are now available to Jira Service Management customers, and AI will also support human agents by autonomously summarizing conversations and helping them craft responses.
Plus, Atlassian also launched a new product called Compass during Q1, which helps developers track the complex web of dependencies, ownership, and compliance that comes with managing software projects.
Atlassian continues to rapidly expand its addressable market by serving more needs for more customers. When the broader economic environment does improve (and eventually, it will), the company is going to be in a great position to capture more business.
Here's the kicker: Based on Atlassian's $3.7 billion in trailing 12-month revenue and its current share price of $182, it trades at a price-to-sales ratio of 12.7. That's near the cheapest level since the company came public in 2015, so now might be a great time for investors to buy in.
