This Company Delivers Consistent Growth
In the technology world, there’s no shortage of fast-growing businesses. What makes some tech stocks special, though, is that they can keep growing at a consistent level. And that’s why today I want to talk to you about Atlassian Corporation PLC (NASDAQ:TEAM).
This enterprise software company was founded in 2002 by two university students, Mike Cannon-Brookes and Scott Farquhar. That same year, they released their first flagship product, “Jira,” an issue-tracking product that allows bug tracking and agile project management.
Since then, the company has grown tremendously. Today, there are more than 170,000 customers that use Atlassian’s tracking, collaboration, communication, service management and development products. (Source: “Q3 FY20 Results,” Atlassian Corporation PLC, April 30, 2020.)
Even though Atlassian may not be a familiar name to consumers, it is one of the biggest players in its industry.
The company’s collaboration and productivity software serves both small and large organizations, including General Motors Company (NYSE:GM), Lyft Inc (NASDAQ:LYFT), Verizon Communications Inc. (NYSE:VZ), and NASA. (Source: (Source: “Atlassian Announces Third Quarter Fiscal Year 2020 Results,” Atlassian Corporation PLC, April 30, 2020.)
As I said earlier, what we want to find are tech companies that can grow both rapidly and consistently. The good news is, that’s exactly what Atlassian offers.
According to the company’s latest earnings report, Atlassian Corporation PLC generated $411.6 million of total revenue in the third quarter of its fiscal-year 2020, which ended March 31. The amount represented a 33% increase from the $309.3 million earned in the year-ago period. (Source: Ibid.)
Note that this marked the seventh consecutive quarter that Atlassian achieved at least 30% year-over-year revenue growth.
Other than the company delivering consistent growth, another thing that I really like about Atlassian stock is that the company has been focusing on building a recurring business. We know that, in the fast-changing tech world, a product could sell well in one year but become obsolete in the next year. Therefore, being able to generate recurring sales is of utmost importance.
Atlassian Corporation PLC builds its recurring business by selling its software products through subscriptions. To give you an idea, here are some numbers:
In the third quarter of the company’s fiscal-year 2019, which ended March 31, 2019, its subscription revenue was $166.5 million. Divide that number by its total revenue of $309.3 million for the quarter and we see that subscription revenue represented 53.8% of the company’s total sales that year.
Fast-forward one year and Atlassian’s subscription revenue grew to $244.2 million in the third quarter of its fiscal-year 2020. Since the company’s total revenue was $411.6 million for the reporting quarter, it means the contribution from subscription revenue had increased to 59.3%.
Mind you, revenue is not the only thing that this tech company has been churning out. Atlassian is also profitable. In its most recent reporting quarter, the company’s adjusted net income came in at $61.9 million, or $0.25 per diluted share.
Again, this marked an improvement from the year-ago quarter, in which Atlassian earned an adjusted net income of $52.4 million, or $0.21 per diluted share.
The stock market has noticed the strong performance from Atlassian Corporation PLC and has rewarded it with a higher share price. Year-to-date, TEAM stock has surged 46%. This was significantly better than the return from major stock market indices during the period.
Atlassian Corporation PLC (NASDAQ:TEAM) Stock Chart
Chart courtesy of StockCharts.com
Looking ahead, management expects Atlassian Corporation to generate $400.0 to $415.0 million of revenue and adjusted earnings of $0.17 to $0.22 per share in the fourth quarter of the company’s fiscal-year 2020. Note that these numbers have factored in management’s view of the business impact of COVID-19.
In a letter to shareholders, the company said that “While the Q3 impact was negligible, early Q4 data suggests that the impact on our business will likely increase. That said, our revenue model benefits from the fact that over 90% of our revenue comes from existing customers, and over 85% is recurring in nature.” (Source: “Shareholder Letter,” Atlassian Corporation PLC, April 30, 2020.)
At the end of the day, keep in mind that Atlassian Corporation offers collaboration and productivity software for developers. In an era when more people are working from home, the company’s products could become more critical.
All in all, I wouldn’t be surprised to see the rally in Atlassian stock continue well into the future.