When it comes to booming sectors and exciting industries, Software as a Service (SaaS) is the first thing on many investors’ minds. No company better exemplifies this than Atlassian (NASDAQ: TEAM), the Australian-based collaborative software developer that is turning heads on Wall Street.
Atlassian’s signs of growth
In its most recent earnings report on January 23, Atlassian posted earnings that showed a company on the rise. Revenue rose 37% year on year, with earnings rising 48% in the same period to a total of $408 million. Not only this, but monthly recurring revenue via subscriptions rose 50% to $228.6 million, up from $152.5 million a year before, underscoring the progress the company continues to make in its cloud-first strategy.
Atlassian is poised to become a powerhouse in an ever-growing market, which is expected to be worth just under $200 billion by 2024, growing at a CAGR of 21.4%.
So what exactly is Atlassian doing to grow in this market?
Atlassian relies on a number of products to drive its growth, the most well-known being Jira, Confluence, and Trello. Jira project-tracking tools and Confluence alone make up two-thirds of the company’s total revenue.
Not one to rest on its laurels, Atlassian decided to completely overhaul its flagship Jira software last year in a bid to encourage regular usage and expand road-mapping functions. The so-called ‘next-gen’ Jira was a huge success for the company, which reported at its January earnings call that 45% of Jira Software customers were accessing roadmaps within a month and active use is now above 50%.
Another massive feather in Atlassian’s cap is its impressive 98% retention rate with customers. For the SaaS and e-commerce industries, over 35% retention is considered elite, and Atlassian’s next nearest competitor, Salesforce (NYSE: CRM) hovers around the 90% mark.
Who is the competition?
As a somewhat diversified SaaS company, Atlassian actually has a number of competitors ranging from small-cap to large-cap. As mentioned above, Salesforce is in close competition with the company’s collaboration software.
Other competitors across the board include the likes of DocuSign (NASDAQ: DOCU), Workday (NASDAQ: WDAY), Zendesk (NYSE: ZEN), and more. Atlassian was once a direct competitor to Slack (NYSE: WORK) through its ‘Stride’ software. However, the two companies came to an agreement, with Atlassian making an equity investment in Slack, and shutting down Stride. The deal seemed to favor Slack at the time, but with rising competition in the form of Microsoft’s (NASDAQ: MSFT) ‘Teams’ software, Atlassian may have dodged a bullet.
Why is Atlassian a good investment?
There are three key reasons why Atlassian could prove to be a strong investment going forward.
One of the key principles of MyWallSt’s investing ethos is centered around whether the company is founder-led. Atlassian founders Michael Cannon-Brookes and Scott Farquhar founded the company in Australia in 2002, and remain co-CEOs. More importantly, the pair have significant skin in the game, owning more than 123 million Class B and 470,944 Class A shares between them (51%), and having almost 91% voting power. As founders, the two will see the company as an extension of themselves, and therefore you know that they will want it to be the best it can be, which is good news for investors.
2. It’s a happy business
A business does not have to be a ‘happy’ place in order to succeed — just look at what’s been going on at Google (NASDAQ: GOOGL) — but when customer and employee approval is as high as Atlassian’s, it’s always a good sign. The company has an overall 4.1 rating on Glassdoor.com, as well as a 94% approval rating for its CEOs, which is massive. For investors, it means that employees are in it for the long-haul, and most likely are invested in the company themselves and strive to improve it. Conversely, low employee turnover also means lower churn costs.
3. A widening moat
The last, and most important factor, is the fact that Atlassian has developed products that become pillars of how employees at tech firms communicate. This is evidenced in the company’s high retention rates, as well as its stock growth of nearly 400% over the past 5 years. With revenue growing at a compounded rate of nearly 36% per year and a healthy free cash flow, Atlassian is truly marching its way to the top of the SaaS game.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in Atlassian. Read our full disclosure policy here.
Content Manager at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.