On Friday, Goldman Sachs updated its stance on Atlassian (NASDAQ:TEAM) Corporation (NASDAQ:TEAM), elevating the price target to $245 from the previous $230, while reaffirming a Buy rating on the shares. The adjustment comes in the wake of Atlassian's first-quarter fiscal year 2025 earnings, which saw the stock surge over 18% in after-hours trading.
The company exceeded expectations with a 3% increase in Subscription Revenue over the consensus and a significant improvement in Operating Profit Margin (OPM) by 400 basis points, attributed to Data Center (DC) performance surpassing guidance by 300 basis points and Cloud operations outperforming by 400 basis points.
Atlassian's share performance has been robust over the last three months, buoyed by growing investor confidence due to an improved macroeconomic landscape, the company's cautious guidance approach, and the potential of its Cloud segment. The analyst pointed to several factors reinforcing their positive outlook, including the tenfold increase in the use of Atlassian Intelligence since January, which suggests wider application use could boost Cloud migrations, seat growth, and a shift to premium products.
The company's core offerings continue to show strong momentum, with Jira Service Management (JSM) now serving 55,000 customers, marking a 22% increase from the fourth quarter of fiscal year 2023. Additionally, both Confluence and Jira have surpassed the 100,000 customer milestone, presenting substantial opportunities for cross-selling, upselling, and price hikes.
Atlassian's efforts to expand a high-touch go-to-market (GTM) strategy are beginning to bear fruit, following a period focused on product-led growth (PLG). The hiring of Brian Duffy is seen as a sign that Atlassian is poised to scale this GTM approach further.
The ongoing health of the Data Center growth, characterized by seat expansion and cross-selling, remains a key element of Atlassian's growth strategy. With the evolution of Atlassian's GTM business and the scaling of AI products, Goldman Sachs anticipates increased conviction in Atlassian's ability to achieve its 20% Cloud Compound Annual Growth Rate (CAGR) and, in the long term, to reach a $10 billion revenue milestone. This trajectory is expected to facilitate a re-rating of the stock, especially as Atlassian currently trades at 9 times enterprise value to CY25 sales, which is below the 12 times average of comparable companies following the "Rule of 40" metric.
In other recent news, Atlassian Corporation has been in the spotlight following strong financial results and strategic moves. The company reported fourth-quarter revenues of $4.4 billion and a free cash flow exceeding $1.4 billion. The acquisition of Loom is projected to bolster cloud revenue growth in the upcoming fiscal year.
Analyst firms Jefferies, Citi, and KeyBanc Capital Markets have shown confidence in Atlassian's future performance, with Jefferies raising its price target to $280, Citi to $255, and KeyBanc to $260. Morgan Stanley positioned Atlassian as their 'Top Pick', projecting approximately 25% free cash flow growth.
Other recent developments include the appointment of Brian Duffy as the Chief Revenue Officer and the general availability of Rovo and Guard Premium, which are expected to enhance its product offerings. Atlassian's co-CEO Scott Farquhar is set to transition to a board member and special advisory position.
InvestingPro Insights
Atlassian Corporation's recent performance aligns with several key insights from InvestingPro. The company's impressive gross profit margin of 81.57% for the last twelve months as of Q4 2024 underscores its strong market position and efficient operations, supporting Goldman Sachs' positive outlook. This is further reinforced by an InvestingPro Tip highlighting Atlassian's "impressive gross profit margins."
The company's revenue growth of 23.31% over the same period demonstrates its continued expansion, aligning with the analyst's expectations of reaching significant revenue milestones. Another InvestingPro Tip notes that "net income is expected to grow this year," which could contribute to the anticipated re-rating of the stock.
Despite these positive indicators, it's worth noting that Atlassian is currently trading at a high Price / Book multiple of 47.59, reflecting investor optimism about its future prospects. This valuation metric aligns with the article's mention of Atlassian's robust share performance and growing investor confidence.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Atlassian Corporation, providing a deeper understanding of the company's financial health and market position.
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