Today’s Price = $29.02
Type of Investment
I like to categorize investments into 6 different categories. I took this from Peter Lynch’s book so all credit goes to him!
Slow Growers – Large and aging companies. Often paying generous and regular dividends. (3M, Boeing, etc.)
Stalwarts – Annual earnings growth rates around 10% – 12%. Good, but not great returns.
Fast-Growers – Small, aggressive new firms with growth in revenue and/or earnings growth of 20% – 25% a year. This is the biggest gains category.
Cyclicals – Companies which sales and profits tend to rise and fall in somewhat predictable patterns. Auto, Airlines, Steel, Shipping.
Turnarounds – Companies that have been battered down or depressed. “no-growers”
Asset Opportunities – Companies that have assets that wall street analysts and others have overlooked. Metals, oil, newspapers and your own knowledge and experience.
From this list, Atlassian is closest to the Fast-Grower category.
They sell subscription software ALM (Application Lifecycle Management) software primary to software companies, but they are venturing out to other industries as well.
They provide solutions for PM’s to track, report, assign and share tasks throughout the lifecycle of a project.
Jira Software – Agile project management software
Confluence – Team wiki
Bitbucket – Collaborative git solution
Jira Service Desk – Customer support self service portal
HipChat – Team chat
And more add ons
I wish Atlassian broke down the revenue by product, however they only break down revenue by the following categories:
– Perpetual license
Zendesk – Customer support
Microsoft – Visual Studio Team Foundation Server
IBM – Rational Team Concert
Hewlett Packard Enterprise – Application Lifecycle Management
Slack (Private) – Chat
Asana (Private) – ALM
Trello (Private) – ALM
45% of their revenue goes into Research & Development
84% profit margins
Forward P/E 70.9
Added 12k+ customers in 2016
60k+ total customers
Jira Marketplace Revenue = $150M
290 of the fortune 500 companies are Atlassian’s customer.
1,200 customers spending over $50k per year
“Atlassian ended the fourth quarter of fiscal 2016 with a total customer count on an active subscription or maintenance agreement basis of 60,950, a 25% increase over June 30, 2015. Atlassian added 3,519 net new customers during the quarter.”
StatusPage acquisition https://www.statuspage.io/
They are PROFITABLE! It is pretty rare for early stage IPO software companies to be profitable. These guys have a strong balance sheet as well. They also have plenty cash backed up if anything does happen.
Cash = $217M
Capital Expenditure = $31M
Operating Cash Flow = $115
Free Cash Flow = $85
No bank debt (Debt they are due immediately if the debtors request the money)
Shareholder’s equity = $190M
Cash to Share = $1.06
Free cash flow growing at ~16% y/y over the last 4 years
Free Cash Flow Per Share = $0.42 / share
The original founders are still the head of this ship. As long as they do a great job making pushing out excellent products
Bull Case (Why company will succeed)
As someone who works in software, it is very very hard to switch project management software. If your company switches their work flow, it takes around 2 weeks to get back to speed. For big software companies with 100’s of expensive tech workers, it is very time consuming and capital intensive. Also, Jira is probably the best ALM in the market. Ask any project manager who have used multiple project management systems.
Atlassian will go into HR, Finance, Marketing, and Legal industry and become really sticky. They goal is to do team productivity what Microsoft Office has done for personal productivity.
Bear Case (Why company will fail)
Startups that make something similar and will have to go on pricing war with them or someone else makes a product that is easier and more efficient for PM’s to collaborate and get more stuff done.
Yes, this is very expensive company trading ~800x earnings at the time. I don’t think I am going to all my eggs in this one company, however it will be in my stocks to hold for the near future as long as their growth story stays the same.