Atlassian’s growth and profit likely to hold up on Wall Street

Contact: Scott Denne

Atlassian brings investors an unfamiliar pairing: profitability and growth. The Australia-based maker of software for managing developer teams recently unveiled its IPO prospectus, which shows the company posted $353m in trailing 12-month revenue, up 50% from a year earlier. And that has come without the massive hit to profitability that most other software vendors have hoped investors would overlook.

The company posted a $7m profit in its last fiscal year (ending in June), driven down from $19m a year earlier by increased costs in marketing and product development. Atlassian spends far less – about 20% of revenue – toward sales than peers such as Workday and ServiceNow, which put up between one-third and half of revenue toward sales and marketing. The most recent two years marked Atlassian’s ninth and tenth consecutive years of profitability.

Atlassian appears far more stable than many of the recent crop of tech IPOs for whom the public markets seemed more like a last resort than an exit. The company consistently sees its sequential topline grow about 10% each quarter and annual revenue growth has actually accelerated a bit in the past few quarters. The stability comes from a shift toward more subscription revenue, which now generates 27% of sales, up from 19% two years ago. Licensing revenue and maintenance make up most of the remaining total, while sales from its third-party app marketplace doubled last year to $16m, contributing to the acceleration of revenue.

In a secondary stock sale last year, investors valued Atlassian at roughly $3.5bn. It should have little difficulty shooting past that mark in its debut. We’d expect the company to be valued at about $5bn, or 15x trailing revenue – the same level as Workday and ServiceNow, two larger SaaS providers with similar growth rates and no sign of profits.

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Posted in IPO