Atlassian has entered the era of artificial intelligence (AI), and the technology could be a big tailwind for its business.
Atlassian (TEAM 0.57%) develops workplace collaboration software that helps organizations manage their workflows and boost productivity. The company has rolled out a series of artificial intelligence (AI) tools to enhance its core products, and they are seeing rapid adoption.
Atlassian just reported its financial results for the third quarter of fiscal 2024 (ended March 31), and it delivered an acceleration in revenue growth on both a sequential and year-over-year basis. It’s even more impressive considering the company has carefully managed its costs, and it even posted a small profit for Q3.
The Wall Street Journal tracks 30 analysts covering Atlassian stock. The majority are bullish and not one analyst recommends selling. Here’s why investors might want to follow their lead.
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Atlassian enters the AI era
Jira and Confluence are Atlassian’s flagship products. Jira was originally designed to help software developers manage, debug, and deliver their software projects, but it’s increasingly used by non-technical teams to collaborate on work of all kinds. Confluence is a more generalized platform, which gives entire organizations a virtual workspace to share content and discuss ideas.
Atlassian Intelligence is a suite of AI tools designed to enhance Jira and Confluence. It features an AI-powered search function that allows users to quickly find issues among the sea of open tickets in Jira. It’s a prompt-based tool that recognizes natural language, so it’s especially useful for non-technical employees.
It can also be used to create virtual agents in Jira Service Management, which can handle many incoming queries from customers that would otherwise require human attention. One company, FanDuel, says it reduced the number of support tickets requiring human intervention by 85% since implementing virtual agents.
Atlassian Intelligence is also a productivity booster in Confluence. Not only can it rapidly summarize a lengthy piece of content, but it can also analyze it and create an action plan so employees know what to do next. As is the case in Jira, Confluence benefits from AI-powered search to reduce the amount of time workers spend traversing the platform.
Atlassian Intelligence was officially released in December, and 30,000 of Atlassian’s 300,000 customers are already using it. So far, 77% say tools like AI-powered search are saving them time every week.
Revenue growth accelerated during Q3
Atlassian delivered a milestone quarter in Q3. Its total revenue increased 30% year over year to a record $1.19 billion, and that growth rate represented an acceleration both sequentially and compared to Q3 last year.
The result was driven by cloud revenue of $703 million, which was up 31% from the year-ago period, the fastest expansion rate in a year. Data center revenue came in at $364 million, up 64% and also marking an acceleration. The latter result was helped by customers buying extra capacity ahead of planned price increases, so growth might come down from this lofty level in the next quarter.
Customers can deploy Atlassian’s software in the cloud (using Atlassian’s servers), which is a great low-cost option for small and mid-size businesses. Many large organizations prefer to use their own servers, or third-party data centers operated by the likes of Amazon Web Services and Microsoft Azure.
Atlassian used to operate with a growth-at-all-costs strategy, which meant it was willing to spend heavily on marketing and research and development even if it resulted in net losses. However, the company has managed its costs more carefully over the past year in the wake of high interest rates and an uncertain economic climate.
During Q3, Atlassian’s operating expenses only rose 5.4% compared to the year-ago period. Most of the increase was attributed to R&D, which makes sense based on the continued rollout of AI. The modest increase in spending combined with Atlassian’s accelerated revenue growth resulted in net income of $12.7 million.
While that’s a small number relative to the company’s revenue, it was a huge positive swing from the $209 million net loss it generated in the year-ago period. It proves that Atlassian can deliver fast growth without burning truckloads of money.
Wall Street is bullish on Atlassian stock
Atlassian stock is trading 63% below its all-time high which was set during the tech frenzy in 2021, when investors assigned it a relatively ambitious valuation. The decline was exacerbated by the company’s slowing revenue growth throughout fiscal 2023, but considering that trend reversed in Q3 2024, the steep discount in the share price might now be a long-term buying opportunity.
Atlassian is on track to generate over $4 billion in total revenue during fiscal 2024 (ending June 30), but the company believes it can more than double that number over the next five years to $10 billion. Even if it’s successful, it would be a mere fraction of its $67 billion addressable market, which continues to grow, and AI could significantly add to that number over time as it creates new ways for businesses to boost their productivity.
The Wall Street Journal tracks 30 analysts covering Atlassian stock, and 13 have given it the highest-possible buy rating, with five more in the overweight (bullish) camp. The remaining 12 recommend holding, and no analysts recommending selling. In light of the above points, it’s no surprise the Street has reached a bullish consensus on Atlassian stock.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Atlassian, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.