It’s Australia’s biggest technology company, but it’s not listed on the Australian Securities Exchange (ASX). Collaboration and workplace productivity software company Atlassian was founded in 2002 by co-CEOs Mike Cannon-Brookes and Scott Farquhar and listed on the NASDAQ in December 2015. Cannon-Brookes and Farquhar were joint CEOs, but the latter stepped down at the end of August, leaving Cannon-Brookes outright CEO. Farquhar remains on the board, and as a “special adviser”.

Priced in its initial public offering (IPO) at US$21 a share, Atlassian has been a great investment for the original shareholders. The stock debuted at US$27.67, and at its peak, in October 2021, Atlassian (under the ticker symbol TEAM) was trading at almost US$460 a share. The COVID pandemic hit the company’s sales growth, however, and by early 2023, the shares hit a 52-week low of US$116 – a point that, in hindsight, would have been a great time to buy.

On Friday, Atlassian reported its first-quarter results, which saw earnings and revenues beat the consensus estimates soundly, with non-GAAP (Generally Accepted Accounting Principles) earnings per share (EPS) of 77 cents beat the Zacks Consensus Estimate of 63 cents; the EPS figure surged 18.5% from 65 cents in the first quarter a year ago, driven, analysts said, by strong top-line growth and disciplined cost management. Revenue was up 21%, to $1.19 billion.

(GAAP earnings in Australia is the same as “statutory” earnings that must be reported to the ASX, reflecting all activities of the business, including one-off items, non-recurring events and other regulatory elements. Many ASX companies stress their “underlying” results, which strip-out one-off charges or non-recurring events, on the grounds that this provides a better representation of underlying financial performance without the impact of any unusual or extraordinary items.)

On a statutory basis, Atlassian lost 48 cents – and is yet to make a profit on that basis. The net loss for the quarter more than tripled to US$196.9 million from US$59 million in the fourth quarter of FY23. However, the company’s operating loss in the 2024 financial year lessened significantly, to US$117.1 million from US$345.2 million in 2023.

After the release of the quarterly result on Friday, Atlassian shares rose by 19% up $35.81 to US$224.35.

And that is still worth buying, according to analysts’ consensus 12-month target prices – with the caveat that there are analysts who predict the share price will fall.

On MarketScreener, the average target price, of 29 analysts, is $250.76, with the most bullish estimate being $420 – and the lowest being $180.

On the Nasdaq website, the consensus target price of 23 analysts is $250.88, with a high target of $300 and a low target of $200.

At Yahoo Finance, the consensus target price of 29 analysts is less bullish, at $222.42, with a high estimate of $420 and a low of $175.

Clearly, Atlassian polarises the analyst community.

Let’s look at the business.

Atlassian designs, develops, licenses, and maintains various software products worldwide. Its product portfolio comprises:

1. Jira Software and Jira Work Management, a project management system that connects technical and business teams so they can better plan, organise, track and manage their work and projects.
2. Jira Service Management, an intuitive and flexible service desk product for creating and managing service experiences for various service team providers, such as IT, legal, and HR teams.
3. Jira Align, Atlassian’s enterprise agility solution designed to help businesses to adapt and respond dynamic business conditions with a focus on value creation.
4. Jira Product, a prioritisation and road mapping tool.
5. Confluence, a connected workspace that organizes knowledge across all teams to move work forward.
6. Trello, a collaboration and organisation product that captures and adds structure to fluid and fast-forming work for teams.
7. Bitbucket, an enterprise-ready Git solution that enables professional dev teams to manage, collaborate, and deploy high-quality code (Git is an open-source revision control system used by thousands of developers around the world who are developing software collaboratively).
8. Atlassian Access, an enterprise-wide product for enhanced security and centralized administration that works across every Atlassian cloud product, enhancing data security and governance for the product suite.
9. Atlas, a teamwork directory.
10. Bamboo, a continuous delivery pipeline.
11. Crucible, a collaborative code review.
12. Fisheye, a search, track, and visualize code change software.
13. Compass, a developer experience platform.
14. Opsgenie, an on-call and alert management software.
15. Sourcetree, a free Git client for windows and mac.
16. Statuspage, a tool that communicates real-time status to users; and
17. Beacon, an intelligent threat detection software.

The flagship product, Jira, has become an essential tool for software development teams, helping to plan, track, and manage software projects efficiently. Atlassian says it has an ever-expanding base of more than 300,000 customers of all sizes and from every industry, spanning more than 200 countries and territories. Fuelled by its “innovation engine,” it has a significant opportunity to expand meaningfully within this installed base.

Atlassian is progressively migrating existing customers, who ran Atlassian’s software in their own data centres, into the cloud, where it can be updated and expanded more easily. This process has not been without its problems, and it has weighed on the share price this year, but investors were heartened by the first-quarter report, which reported that Atlassian’s cloud revenue grew by 31% per cent, higher than the 27% growth rate the company had forecast, and much stronger than total revenue growth.

The three largest products (Jira, Confluence, and Jira Service Management) drive 75% of Atlassian’s total revenue today and show no signs of slowing down. Jira currently generates US$1.7 billion ($2.6 billion) in annual revenue, and Atlassian says it is growing faster than the overall business. Confluence contributes US$1 billion ($1.5 billion) in annual revenue, growing in line with the overall business. Jira Service Management produces US$600 million ($915 million) in annual revenue and is the fastest-growing Atlassian product of those that are considered to be “at-scale.”

Atlassian says it has opportunities across three “massive” markets: software development, service management, and work management. As every company becomes a technology company, these markets are becoming more interconnected, and Atlassian believes this places it in a unique position to connect technical and business teams.

In software development, Atlassian estimates its serviceable addressable market to be US$17 billion ($25.9 billion) in software development, growing 9% annually. In service management, the company estimates its serviceable addressable market to be US$15 billion ($22.9 billion) in service management, growing 13% annually. In work management, Atlassian estimates its serviceable addressable market to be US$35 billion ($53.4 billion) in work management, growing 14% annually. That sums to a US$67 billion ($102.2 billion) total addressable global “opportunity” for Atlassian.

But as business becomes more complex, the company says it is seeing a rapid rise in teams like HR, marketing, and finance working with their counterparts in development and IT. Management wants to see a single system of work, and teams want seamless collaboration. When Atlassian extrapolates the Jira Service Management use cases beyond IT to those that run across HR, legal, marketing teams, and more, it says it has an additional US$9 billion ($13.7 billion) addressable opportunity to empower every team – and moreover, it says “much of this opportunity is already in its customer base.”

While Atlassian has a paid customer base of more than 300,000, it says it is very early in the journey with these customers; the company estimates that it has a US$18 billion ($27.4 billion) opportunity within its existing customer base alone. And from its existing customer base and teams currently using free editions of its products, Atlassian sees a US$44 billion ($67 billion) upgrade opportunity based on 4 million potential customers across the globe.

Jira effectively gives Atlassian the “network effect” of having created an ecosystem, with Jira consultancies, third-party apps and plug-ins, and deep integration into customers’ processes, driving productivity improvements. If one element grows, the whole ecosystem profits, and the lifetime revenue per customer grows as it adds elements.

Atlassian has a large runway of growth ahead of it, but it also has challenges, like any business.

The most similar companies to Atlassian on the ASX are cloud small-business accounting platform provider Xero (XRO); and global logistics and freight-forwarding software provider WiseTech Global (WTC), which has lately faced a flurry of headlines around allegations made against its founder and CEO, who has stepped down from his role; and hotel and accommodation management software provider SiteMinder (SDR).

All these have huge total addressable markets to grow into, and large material upside possible. The proposition is the same for these companies: the users of the software find it so helpful, it becomes embedded in their business, and too difficult to contemplate using a competitor’s product. None of these businesses have unanimity among analysts that their share prices will inexorably rise from current levels, but people buying the stocks at current levels do have a lot in their favour in terms of how the businesses are positioned. Particularly, in my view, Atlassian. Investors can buy Atlassian shares through any broker or platform that provides access to Nasdaq-listed stocks.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.