Atlassian (TEAM) Surges as Customer Base Soars in FQ4, At Least Six Analyst Raise PTs on Accelerating Cloud Transition

July 30, 2021 8:43 AM EDT
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Price: $413.94 +1.06%

Rating Summary:
    20 Buy, 12 Hold, 0 Sell

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    Up: 17 | Down: 5 | New: 36
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Shares of Atlassian Corporation (NASDAQ: TEAM) are up more than 11% in early Friday trading after the company delivered strong fiscal fourth-quarter earnings.

Atlassian saw its sales rise by 30% after adding over 23,000 customers to deliver revenue of $559.5 million to beat the $524 million expected from surveyed analysts. Earnings per share came in at $0.24 per share to top the $0.18 consensus.

“Our Q4 was a ripper of a quarter - as we Aussies say - as we added over 23,000 new customers, grew subscription revenue 50 percent year-over-year, and continued to see cloud momentum build,” said Mike Cannon-Brookes, Atlassian’s co-founder and co-CEO.

“We are incredibly proud of our resilience and execution during fiscal 2021. We continued to innovate with five new products built on top of our cloud platform, surpassed 200,000 customers and $2 billion in revenue, and added over 1,500 new Atlassians to the team.”

As for the outlook, TEAM is projecting FQ1 earnings of $0.38 per share to $0.39 per share on sales between $575 million and $590 million. This compares to the Street’s forecast of $0.31 per share on sales of $541 million.

“Looking ahead to fiscal 2022 and beyond, the opportunities in front of Atlassian have never been greater. We are reimagining the future of work and are keen to seize the massive opportunities that we see across our three core markets: agile development; IT service management; and work management for all teams,” added Scott Farquhar, Atlassian’s co-founder and co-CEO.

BMO analyst Keith Bachman reiterated a “Market Perform” rating due to high valuation but raised the price target to $345.00 per share from $265.00.

“We come away from TEAM's earnings call impressed with absolute growth rates, anecdotal comments on cloud conversions, and portfolio positioning and market potential. One of the challenges of TEAM’s model and transition is trying to understand underlying growth. We believe that a potential framework is subscription rev growth less about mid single-digit positive impact from conversions, or ~30% growth even in FY23. We raise our price target to $345, helped by the introduction of our FY23 estimates, and stay Market Perform due to valuation,” Bachman said in a note.

Canaccord Genuity analyst David Hynes praised the company’s results, which didn’t surprise him as the cloud transition picks up steam. He raised his price target to $325 from $275.

“We have a lot of confidence in Atlassian, but the truth is we expected the cloud transition to be a bit choppier than it’s been to date. Perhaps the upside surprise has been a master class in expectations management, but more likely it’s that the firm has built cloud products that customers want and that they see value in making the cutover,” the analyst wrote in a note to clients.

Hynes weighs in on high valuation and comments:

“The fact is it’s hard to advocate buying TEAM shares based on any near-term financial metrics – both revenue and cash flow forecasts remain understated during the transition. Instead, we fall back on (1) the cloud transition will eventually improve large customer monetization by a factor of 3.5x prior maintenance spend, (2) the dramatic increase in new customer additions provides fertile ground for future upsell, and (3) we’re confident that Atlassian will re-emerge to be best-in-class when it comes to delivering a combination of growth and profits, and that will always demand a premium.”

In addition to BMO and Canaccord, TEAM saw its price target raised at Truist Securities, Wells Fargo, Cowen and Mizuho, among others.

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