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Atlassian Corporation PLC (TEAM) Up 19.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Atlassian Corporation PLC (TEAM). Shares have added about 19.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Atlassian Corporation PLC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Atlassian Q3 Earnings & Revenues Top Estimates, Up Y/Y

Atlassian reported stellar third-quarter fiscal 2020 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate as well as marked significant year-over-year improvements. The company’s non-IFRS earnings per share of 25 cents beat the consensus mark by 25% and jumped 19% year over year. Robust revenue growth and better cost management chiefly boosted Atlassian’s fiscal third-quarter earnings.

Quarter in Detail

The company reported fiscal third-quarter revenues of $411.6 million, which surpassed the Zacks Consensus Estimate of $396 million. Moreover, quarterly revenues surged 33% year on year, mainly driven by new client additions and increased pricing on certain products. During the reported quarter, Atlassian added 6,261 net new-clients, bringing the total customer count to 171,051.

Segment-wise, Subscription revenues jumped 47% year over year to $244.2 million. Sales from the Maintenance business increased 21% to $119.6 million, while Perpetual License business revenues declined 9% to $21 million. Other revenues climbed 29% year over year to $26.8 million.

The company’s non-IFRS gross profit increased 32% year over year to $353.1 million. However, non-IFRS gross margin contracted50 basis points (bps) to 85.8% in the fiscal third quarter.

Atlassian’s non-IFRS operating income grew 33% year over year to $77.2 million, while margin remained flat at 18.8%.

The company ended the fiscal third quarter with cash and cash equivalents and short-term investments of $2.07 billion. During the quarter, the company generated operating and free cash flow of $156.3 million and $140.3 million, respectively.

Outlook

Atlassian stated that the coronavirus outbreak had negligible impact on its fiscal third-quarter results. However, the company cautioned that many of its customers, including small businesses as well as big organizations, are economically sensitive and have been adversely impacted by the pandemic and related setbacks. Therefore, Atlassian believes the impact of the pandemic could increase in its fiscal fourth-quarter performance. As a result, the company issued a wider-than-usual guidance range for the current quarter.

For the fiscal fourth quarter, the company anticipates revenues to be between $400 million $415 million, suggesting year-over-year growth of 19-24%.

Non-IFRS gross margin is anticipated to be approximately 85. Non-IFRS operating margin is projected to be in the range of 14-17%. The company expects to report non-IFRS earnings per share in the 17-22 cents band.

Additionally, Atlassian has updated its fiscal 2020 outlook. The company now projects revenues of $1.584-$1.599 billion compared with its previous forecast of $1.59-$1.60 billion.

Non-IFRS gross margin is now expected to be approximately 86% compared with the earlier projection of 85.5-86%. Non-IFRS operating margin is now projected at 21.5-22.5%, higher than the previous expectation of 21-22%.

The company also raised its fiscal non-IFRS earnings outlook to $1.06-$1.12 per share from the $1.03–$1.09 projected previously.

Operating and free cash flows are now anticipated in the range of $512-$542 million and $445-$475 million, respectively. Earlier, the company had projected an operating cash flow of $535-545 million and free cash flow of $475-$485 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -84.38% due to these changes.

VGM Scores

At this time, Atlassian Corporation PLC has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Atlassian Corporation PLC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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