Atlassian losses continue despite subscription revenue growth

Australian-founded tech giant Atlassian Corporation (NASDAQ: TEAM) has reported another consecutive quarterly loss in 2Q23, leading the software group's shares to drop in after-hours trading. 

The company, which operates a suite of workplace management software, recorded a loss of USD$99.2 million (AUD$140 million) for the second quarter of the fiscal year - a significant decline from operating income of $23 million posted this time one year ago.

The year-on-year swing into the red was also much more pronounced than in the prior quarter. 

As such, the company’s shares have dipped in after hours trading - down more than 13 per cent at the time of writing - compounded by the company’s guidance for sales of US$910 million in the March quarter missing analysts’ forecasts.

On a brighter note, revenue rose by 27 per cent in the period ending 31 December 2022 to USD$873 million (AUD$1.2 billion), buoyed by 40 per cent year-on-year growth of quarterly subscription income.

Atlassian co-founder and co-CEO Scott Farquhar said he was proud of the team’s achievements despite ‘yet another unpredictable year’.

“2023 will be all about helping our customers navigate these challenging times, absorbing the macro-driven impacts on our business, and setting Atlassian up for long-term success,” Farquhar said.

Co-founder and co-CEO Mike Cannon-Brookes added that the company will “keep playing offence across our three large markets while being pragmatic”.

“Our track record of making smart investment decisions in the service of long-term payoffs continues to yield results as we recently surpassed 45,000 Jira Service Management customers, making it one of our fastest-growing products,” Cannon-Brookes said.

These results mark the second time this financial year that Atlassian has posted an operating loss, following on from the first quarter’s USD$34 million loss.

Atlassian also revealed a net loss of USD$205 million (AUD$290 million) for the quarter - a significant downturn on a USD$22.3 million loss for the same period one year ago.

At the end of 2022, Atlassian had $1.7 billion in cash and cash equivalents plus short-term investments.

Further, the tech giant closed out the period with a total customer count of 253,177 - representing growth of 4,004 net new customers.

The company anticipates revenue of USD$890-$910 million for 3Q23, plus total revenue growth year on year of 25 per cent.

In a letter to shareholders, the company detailed the ‘massive opportunities’ available to Atlassian throughout 2023 - demonstrating a company attempting to push through the tech downturn hitting its US peers and other macroeconomic headwinds blowing its way.

Of particular note, Atlassian said it was seeing solid growth in customers signing up to free editions of its cloud products, but more hesitancy to upgrade to paid editions.

“While these macro-induced headwinds became more pronounced in Q2, calendar year 2023 will be all about helping our customers navigate these challenging times, absorbing the downstream impacts on our business, and setting ourselves up for long-term success,” Atlassian said.

“To be clear, our competitive position remains unchanged. As customers seek to work more effectively, and accelerate digital transformation in an uncertain environment, they’re deepening their commitment to Atlassian. Cloud migrations are moving right along, customers are signing longer contracts, and retention remains healthy.

“As we said last quarter, we intend to continue playing offence in our three large markets while balancing our investments against the growth of our business overall. Atlassian’s unique business model, broad customer base, and agile approach to planning allow us to adapt to changes quickly, which is exactly what we’re doing.”

These comments reflect the sentiment expressed by co-founder Farquhar following the release of the group’s 1Q23 results late last year, where he explained how Atlassian would push through ‘turbulent macroeconomic’ market conditions.

“We started in 2001/2002 in sort of the dot com crash, we went through 2008, 2009, and I guess we’re now in the third downturn for us,” he said.

“What we’ve learned is that during those periods of time, if you can invest wisely you can come out of the other side with the leaderboard shaken up a little bit and you can come out higher on that leaderboard than you went going in.

“That informs a lot of how we think about the investments through this period.”