UPDATED 21:13 EDT / APRIL 30 2020

CLOUD

Atlassian tops earnings target and outlines plan to weather the coronavirus but stock falls

Enterprise productivity software company Atlassian Corp. Plc. delivered better-than-expected fiscal third-quarter results today, but the company’s stock lost almost 5% of its value in after-hours trading after it issued a light outlook for the next quarter.

Atlassian, which sells project management and collaboration software for developers and engineers, including Jira, Confluence and Bitbucket, reported a profit before certain costs such as stock compensation of $61.9 million, or 25 cents per share on revenue of $411.6 million, up 33% from the same period a year ago. It had a net loss of $158.8 million, mostly because of a noncash charge related to revaluing exchangeable senior notes and related capped calls.

Wall Street had expected Atlassian to post an adjusted profit of 21 cents per share on revenue of $395.1 million.

But whatever optimism the company’s performance may have generated was quickly swept away, as officials warned they’re unlikely to hit sales targets in the next three months. For the fourth quarter, officials projected a profit of 17 to 22 cents per share on revenue of between $400 million and $415 million. The midrange of that guidance was well below the analyst consensus of a 23-cent-per-share profit on $417.7 million in revenue.

Despite that, Atlassian co-Chief Executive Officers Scott Farquhar and Mike Cannon-Brookes (pictured) penned a letter to shareholders that outlined the company’s strategy for surviving the coronavirus pandemic. The plan involves offering free starter editions of its cloud products to try to reel in new customers and slashing the price of some of its core products.

“In the coming months and quarters, we will play offense by leveraging three core competitive advantages: our culture, our business model, and our strong portfolio of products,” the CEOs said. “Early examples of that commitment include accelerating the rollout of free cloud editions of our core products and maintaining hiring momentum to deliver on our ambitious roadmap.”

In March, Atlassian rolled out free cloud editions of its core software products, including Jira, which is used to track products, and Confluence, its enterprise collaboration tool.

“Early results are promising with new sign-ups increasing approximately 125% in recent weeks,” Farquhar and Cannon-Brookes said. “Just as with starters in 2009, free cloud editions have the potential to significantly expand our user base, build new long-term relationships, fuel word-of-mouth advocates, and drive millions of user insights to improve our products.”

The company is also planning some drastic cuts in the price of its introductory core products, from more than $1,000 to just $10.

“Atlassian now has 150,000 organizations on starter licenses,” the CEOs said. “In the 2008-2009 downturn, these types of customers gave Atlassian more wallet share over time.”

The company has also embarked on a hiring spree to try to scoop up some fresh talent at a time when employment opportunities elsewhere may be limited.

“Against a work-from-home backdrop, March represented the strongest month of hiring in our history,” the CEOs said. “We welcomed approximately 200 new members to our team. The IT and HR teams didn’t miss a beat in delivering hundreds of laptops and welcome kits across eight countries, each with a fully digital onboarding experience.”

In the letter, the co-CEOs noted that Atlassian now holds more than $2 billion in cash and investments on its balance sheet. It also reported free cash flow of $140.3 million, topping estimates of $111 million.

Photo: TEDxSydney/Flickr

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