Expectations were high going into Atlassian‘s (NASDAQ:TEAM) quarterly earnings report. The company’s results beat its guidance, but Wall Street had been hoping for even more, and sent shares down by as much as 10% during Friday trading, though they closed the day only 4.7% lower.
The news wasn’t all bad, however — some data points from Atlassian’s fiscal 2020 first-quarter earnings release were impressive, and illustrate why the software-as-a-service provider still has a bright future.
1. Revenue grew 36%
For the quarter that ended Sept. 30, Atlassian reported revenue of $363.4 million, up from the $267.3 million it generated in the prior-year quarter. While growth of that caliber is impressive in its own right, what’s even more so is that its growth rate barely ticked down from the 37% increase in last year’s first quarter. It also easily cleared the bar set by management, which had guided for a revenue range that topped out at $353 million. Overall, adjusted earnings per share grew by 40% year over year to $0.28, which also topped management’s guidance.
Strong subscription revenue continued to drive the company’s gains, climbing 50% year over year to $201.1 million, while maintenance revenue — which is lumpier and less predictable — grew 19% to $110.1 million. Sales of perpetual licenses and the “other revenue” category grew by 13% and 47%, respectively.
2. It added more than 7,000 new customers
Atlassian closed out the quarter with 159,787 total customers holding active subscriptions or maintenance agreements, and added 7,060 net new customers during the quarter — up 20% from the 5,888 it added in the prior-year quarter.
On the conference call to discuss the results, CEO Scott Farquhar noted that the company continued to give organizations reasons to sign up. “This quarter, we introduced two important new additions of our cloud offerings, Free and Premium,” he said. “Our disruptive business model continues to win new customers both large and small and those new additions offer them more choice and capabilities.”
3. It made another smart acquisition
Atlassian hasn’t been bashful about purchasing companies that have tools that would provide additional functionality for its users. In the last two years alone, those acquisitions have included Trello, OpsGenie, AgileCraft, and Good Software.
The company continued its acquisitive ways, adding Code Barrel, creators of Automation for Jira. The company was founded by Nick Menere and Andreas Knecht, two of the original engineers behind Atlassian’s Jira. Code Barrel’s tool makes it easier to automate recurring tasks on the platform, reducing duplication of effort. Atlassian said the software is already used by more than 6,000 organizations, and management believes it will greatly increase the functionality of Jira for a wide swath of its customers.
The sky isn’t falling
Despite the market’s chilly reception of Atlassian’s results, long-term investors shouldn’t be concerned. As I pointed out earlier this week, the stock sported a rather frothy valuation, with a trailing-12-month price-to-sales ratio of more than 25 — when a ratio between 1 and 2 is viewed as attractive. Investors have grown increasingly wary of many high-flying tech stocks in recent months, bidding their share prices down even in the face of solid results.
Even after today’s drubbing, its P/S ratio still sits above 21, so the stock will likely continue to be volatile. That said, Atlassian’s workflow-management and team-collaboration tools continue to gain converts, and the company has a long runway for growth ahead. Investors should ignore the short-term volatility and keep their eyes on the prize.