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2B buy signal and outstanding fundamentals make Atlassian worth a look

September 9, 2022

This s not a bad looking chart with a trend line break and a golden cross on the moving averages. The Coppock indicator is in free fall and recently became negative. The main positive is the fundamentals which remain outstanding. Atlassian has been around a little longer than some of the other enterprise software companies. It was founded 20 years ago in 2002 in Sydney Australia and the co-founders still lead the company and are still very young, at least from my perspective. They have been shifting the group’s software products to the cloud with great success while following their r&d heavy, sales and marketing light, strategy which has delivered such outstanding growth.

Atlassian’s software helps teams of IT guys (and girls) work more effectively together. Given the way the world has been going this is a huge market and they already have a near $3bn chunk of it. The latest CEO’s letter confirmed the great progress being made.

Atlassian rolls into the new fiscal year with robust momentum in the cloud. We closed FY22 with over 200,000 Cloud customers, Cloud revenue growth in Q4’22 of 55pc year-over-year, and a Cloud net expansion rate that topped 130pc (with large customers topping 140pc). Looking ahead, we expect Cloud revenue growth to continue at a healthy pace, reiterating what we’ve said previously: approximately 50pc year-over-year for both FY23 and FY24, with approximately 10 points of this growth driven by migrations in both years.

Q4 FY22,

The group identifies three reasons why prospects look good whatever happens to the global economy.

First, we’ve observed over the years that developers tend to be the last roles companies scale back on. We believe this will continue to prove true, especially for the overwhelming number of organizations undergoing digital transformation. Second, whilst our products punch above their weight in terms of value, Atlassian is a relatively small line item in overall IT budgets and likely not where customers look to reduce costs. Third, customers tell us that Atlassian products are mission-critical for them. And because our products are already the low-cost option, there aren’t further savings to be had from switching to a competitor.

Q4, FY22, 4 August 2022

Another indicator of ambition at Atlassian is the rate of hiring with almost 50pc of the labour force added in the last two years.

We’ve hired over 2,300 Atlassians globally (over a quarter of our team) over the past year, 50pc of whom live more than two hours from an office location, and over 3,800 Atlassians in total over the past two years. Thanks to Team Anywhere, Atlassian has access to a much larger talent pool and can drive towards our hiring goals without lowering the bar.

Q4, FY22, 4 August 2022

Strategy

It is too early to tell whether the tide has turned in stock markets but Atlassian has outstanding fundamentals and a good looking chart. The Coppock is falling but has turned negative and I have a feeling that buying stocks with great fundamentals and negative Coppock is going to prove rewarding in the long term.

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