Atlassian (NDQ:TEAM): Why is this Aussie home grown tech company missing the Tech Rebound?

Are Aussie investors really poorer for not having Atlassian (NDQ:TEAM) on the ASX? While many of the ASX’s tech stocks like Xero (ASX:XRO) and WiseTech (ASX:WTC) have rebounded from the Tech Wreck – and plenty of US tech stocks have too – Atlassian has not and is up just 12% in 5 years.

Atlassian (NDQ:TEAM) share price chart, log scale (Source: TradingView)

In fact, shares took a hit in early August 2024 with an earnings miss – so much so that the company’s founders lost $1.9bn from their fortunes in a single day.

Why Atlassian is not ASX listed

Let’s take a brief jump back in time for a bit. Scott Farquhar and Mike Cannon-Brookes co-founded the company straight after they graduated from university in 2002 and right after the dot com bubble. The first two products were Jira and Confluence which enabled software developers to track issues and collaborate with one another. Farquhar and Cannon-Brookes knew these products were needed and they could fill a hole in the market. The freemium model at the time enables a lot of people to start using it quickly. The company grew both organically and through M&A, particularly in 2007 when it bought Cenqua and in 2012 when it bought Hipchat. No external capital was raised until 2010.

The company’s listing came in late 2015 were it was valued at US$4.4bn, A$6.1bn, and shares traded at US$21 per share. The listing in New York came despite Sydney being one of its two major offices – the other being San Francisco, although it shifted its global headquarters to the UK 2 years prior. It is not as if it is abandoning Sydney, if its building of the Atlassian Tower near Sydney’s Central Station is any indication.

Whenever interviewed and asked why the company is not listed on the ASX, Farquhar and Cannon-Brookes would typically state the US market was bigger and mature. Many suspect, and we do too, that it was the ASX’s intolerance to dual class share structures. Atlassian has a dual-class structure where shares owned by Cannon-Brookes and Farquhar have 10 times the number of votes than other shareholders. Farquhar announced earlier this year he could be standing down as co-CEO, but would remain on the board. The pair still own about 40% of the company.

Why Atlassian is missing out on the Tech Rebound?

Now back to the present, specifically the company’s earnings miss earlier in August 2024. After promising 20% revenue growth over the next 3 years, and reiterating that target only 3 months prior, Atlassian now expects just 16% growth. The maker of collaboration and project management software has its fair share of clients, but has tough competition with Microsoft and Oracle, as well as a tough time getting existing customers to ‘upgrade’. Even when the customers say yes, the deals are taking longer to close than they used to.

Another concern is that the company is not yet profitable, at least not on an annual basis and consensus estimates only expect this in FY28 (being the 12 months ending June 30, 2028 given that Atlassian uses a July 1 to June 30 financial year). Many of the companies that gained the most after the Tech Wreck were companies that became profitable, or made substantial progress towards doing so.

There’s also a case to be made that some of the founders’ side hustles were causing a distraction such as Mike Cannon-Brookes’ war on AGL Energy’s board and Scott Farqhar’s push to get his alma mater Cranbrook co-ed – while both were successful, neither came without a cost. Finally, we note that Atlassian bought video messaging app Loom last year, paying US$975m. The price was a hefty discount from the US$1.5bn it was valued at in 2021. There are plenty of video calling apps, most notably Zoom, so Atlassian was arguably paying more for its 2m user base.

Growth expected over the next 4 years

24 analysts cover the company and their target price is US$218.18, more than 35% higher than the current share price. But even at its current price, Atlassian is at an EV/EBITDA of 34.2x, a P/E of 49.5x and a PEG of 1.95x. In FY25, analysts expect $5.1bn in revenue (up 16%) and an EPS loss of $0.89 per share. In FY26, $6.1bn in revenue (up 20%) and an EPS loss of $0.30 per share. In FY27, $7.4bn in revenue (up 21%) and an $0.27 EPS loss. Finally in FY28, $8.8bn in revenue (up 19%) and an $0.85 per share EPS profit. You can see the company is expected to return to 20% revenue growth before too long.

However, investors will want to see concrete evidence that they did not see during the company’s most recent results. And so we would urge caution towards this company, for the time being.

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