- Mizuho maintained its optimism on Atlassian growth
- Aims to flex pricing power as user growth slows
- Valuation back down to earth but it has lots of potential
It is a name many investors will not know but Atlassian (TEAM:NASDAQ) has long been a popular holding for growth company fund managers.
Australian technology firm Atlassian runs a software suite that allows businesses to collaborate and manage operations. It is used heavily by software developers and project managers to manage teamwork. It IPO’d in New York back in 2015 at a $4.4 billion valuation and T Rowe Price invested from the off, implying a hefty retail investor backing.
The company believes it has a large growth opportunity ahead, targeting at least $10 billion in annual revenue within the next few years, compared to the $2.8 billion it generated during its fiscal 2022 (30 June). Forecasts see revenue hitting $3 billion this year.
GROWTH STOCK SELL-OFF
Like most growth stocks, 2022 was tough going and the share price was absolutely hammered by rising inflation and interest rates. Last year the shares lost 66% of their value last year to about $129. But 2023 has got off to a far better start and this week the stock jumped 21% to the current $146.48.
This was thanks to analysts at Mizuho Securities, who think the stock could rally 80%-odd through 2023. In a note to clients, Mizuho flagged that Atlassian just raised prices this week. The ability of a company to up prices without losing scores of customers is typically a hallmark of a strong company, and Mizuho believes Atlassian will sail through this test in the coming weeks thanks to its strong market position.
EARNINGS AND TONE VITAL
That means the market will be watching next week’s (19 Jan) earnings release closely. Earnings in the past two quarters have fallen short of expectations - $0.27 vs $0.271 per share in August, and $0.36 against $0.40 in November, despite revenues beating both times. A sign of the tougher times perhaps but a shock for investors all the same - Atlassian had beaten quarterly estimates every quarter since its IPO up to August.
Expect investors to carefully sift through early commentary to seek any early signs of customer reaction to the price rises. A negative tone or a third earnings miss on the spin could undermine confidence.
Analyst consensus for next week’s release is pitched at $0.43 per share of earnings on about $877 million of revenue, based on Investing.com data.
