This article talks about whether and in which situations you may want to consider to buy Atlassian shares and gives you insights in our knowledge of the Atlassian ecosystem. It also talks about my personal plans as an investor.
Since December 10th in 2015 Atlassian is a publicly traded company on Nasdaq. You probably have seen this picture already:
I was pretty impressed, because having the guts to do something differently is what distinguishes Atlassian from others. Those Nasdaq-bell-ringers usually don’t come with family and kids. They wear suits. They choose something like “ATLS” instead of “TEAM” as their symbol.
In my opinion Atlassian has done a lot to make sure, that people understand, that they are focused on the long term success. They don’t try to impress anyone. They did not adapt for the corporate world. They did not put on suits. And they probably will not care too much about each and every quarterly call. That's at least what I hope for.
Tomorrow is the first quarterly earnings call and you can participate. This blog posts tells you how to call in and how you can be involved. The investors overview page on the Atlassian website also offers an email subscription and quick links to the SEC filings and the current stock price, that is also available directly at Nasdaq.
So telling from this first appearance I wouldn’t be too surprised, if the stock would follow its “sideways” movement for a while. I assume, that the investors out there still don’t really understand what Google and facebook do and what their business is and what it is not. It will take a long time for Wall Street to fully understand Atlassian. That's why very good or very bad financial data could lead to a very high amplitude for trades and the share's pricing. Tomorrow will be the first test on this hypothesis.
Wall Street asks me about stock pricing?
I was called up by Wall Street analysts who asked whether I thought someone should buy Atlassian stocks. I asked him: “How should I know a decent answer?” He answered: “How should I know? You earn your money with this stuff.” That made me think about this blog post: Why tell him and not our customers? Why not help you make better educated decisions?
There is no definite answer to a complex problem
If you are waiting for my recommendation “Strong buy” or “Strong sell”, you can stop at this point. I am not going to reduce it to that level. And I will not repeat this type of blog post for every new earnings call. It’s like in a big project with a big corporation. It’s never the same. And that’s why any recommendation at this point would be outdated by tomorrow. General information and trends will survive much longer and help you more.
Should you buy stocks at all?
That’s highly depending on your status and your time horizon. If you are already in the Atlassian ecosystem, I would not recommend to buy stocks. More on that later. If you are a risk-averse investor like me you should be in this investment for the long haul. Big short term gains and losses seem to be very likely to me as long as people get to know Atlassian better.
Will I buy stocks?
That’s also something that I started thinking about. Technically I can’t at this point. I do not have a stock trading account. I closed it after a penny stock I buy surged up 300% one day and I was what seems to be called “stopped out” with my limit at 200%. After all I tripled my money but lost about 2k Euros compared to the starting and closing price of that day. I decided that trading is not my business. So before being able to be Nasdaq/TEAM owner, I would need to get a trading account. That is more difficult in Germany than in the U.S. where the Robin Hood app allows quick and easy and commission free trading for U.S. citizens. So for time being the answer is no.
Should Atlassian partners buy stocks?
From a legal standpoint trading with Atlassian stocks is a difficult topic both for partners and for add-on developers. They do have insights into this market, that others do not. If I trade Atlassian stocks, I run the risk of being accused of insider trading as I may have more information than the market has. Let’s quote Wikipedia here:
“The rules around insider trading are complex and vary significantly from country to country and enforcement is mixed. The definition of insider can be broad and may not only cover insiders themselves but also any person related to them, such as brokers, associates and even family members. Any person who becomes aware of non-public information and trades on that basis may be guilty.”
And then there is a very pragmatic risk diversity argument that makes me recommend people professionally involved in the Atlassian ecosystem not to invest in Atlassian: If you are in that business you will inherently benefit from a good business that Atlassian makes. So it could be smarter to invest extra money in other areas to manage your risk. Do you hear the “German bean counter” and his “Angst”. 😀
Customers should buy Atlassian stocks
So we have weeded out the day traders and short term investors.
“You are not interested in big bucks and high risk? Then I would assume, that buying Atlassian stocks is pretty smart. Especially if you are an Atlassian customer.”
Atlassian has a phenomenal retention rate for customers as soon as they have bought more than one product, which happens a lot. People fall in love with the software “naturally” and grow into groupies and fans of the company. It’s similar to what you see with Apple-fan-boys.
As a customer you have a very good overview of where Atlassian is strong and how that changes over time. Most customers especially bigger ones work with partners like us. And then they have extensive knowledge about the market and the competitors.
Comparing Atlassian solutions to others in the market eats up a major part of my client-work today. For our intranet suite Linchpin that is based on Atlassian Confluence I have spend a lot of time in Microsoft Sharepoint and JIVE and other competitor solutions. We have even financed a study about intranet comparisons with a university.
The enterprise software market, that Atlassian is in, is not moving too fast. So you’ll probably know way before Wall Street when the wind is changing.
Which Atlassian business areas will be strong?
At this point there are the following areas that Atlassian is active in:
- Team Collaboration with Confluence
- Software Development with JIRA
- Group chat with HipChat
- Customer service with JIRA Service Desk
Team Collaboration with Confluence
When Atlassian invested in the rich text editor for what felt 300 years (and was probably 18 months) I hated them for doing it. I love Wiki markup. Something that poses a big problem to Wikipedia today as non-tech people like me usually don’t get it. Today Atlassian beats them all hands down.
All the other smaller collaboration solutions have weak editors. But you need to kick email and meetings out of business at least partially when team collaboration should be used extensively in your company. The rich text editor is key. The only worthy competitors in this field are Google with Google Docs and Microsoft with their Office 365 product. But they target a different market and their software is document-centric, which is a different approach. Atlassians valuation is at about 5 billion and Microsoft (416 billion) and Google (499 billion) are a little higher.
In summary I think that Confluence will be strong.
Software Development with JIRA (and Bitbucket)
I know, that there is a lot from Microsoft, IBM and Hewlett Packard and other blue chip vendors around, that should be competition and technically is. But those clients that look closely with us at Atlassian’s ALM suite (including HipChat, Confluence, JIRA, Bitbucket, Bamboo) always convert. The level of integration and the quality of the solution is second to none. JIRA is the strongest product of Atlassian. And that’s where they really kick ass.
Watch this blog. As soon as the others arrive, I will tell you here if they can beat Atlassian. At this point I would be frightened as Microsoft with my Team Foundation Server and as all the others that may still earn more in that market. But they will need to stretch.
In summary I think that JIRA will be very strong.
Customer service with JIRA Service Desk
It’s a new field for Atlassian. And their approach is much different from other vendors that focus much more on email integration and customer facing support. This is a valid field and Atlassian will keep on earning good money here. But it derives from their strong positioning with JIRA as described above. Atlassian is neither leading this marketing nor do I see them lead it anytime soon. I have thought about kicking it out of this list all together. It’s a nice addition, but it’s still JIRA in my view. We’ll revisit that in 3 to 5 years.
Group chat with HipChat
Oh boy, that’s a trend. Facebook bought Whatsapp for 19 billion in 2014. Whatsapp is in instant messaging. And that’s exactly what Atlassian does with HipChat for companies. Whatsapp for the enterprise. There is a long discussion on who is leading this field. I have written a long overview of competitors and the market on Quora last friday. In this blog I have compared it to Fleep recently. If Atlassian fails with HipChat to conquer the enterprise market, that is most probably owned again by Microsoft with Skype for Business (formerly Lync), they will still earn money. Just like with JIRA Service Desk their own community is big enough to maintain this as a profitable product. But if Atlassian succeeds in this group chat arena, that alone could make the valuation increase dramatically. So if you are one of those fast-paced investors. Watch HipChat and their competitor Slack closely. For the normal rest of us talking to your Atlassian partner should be just fine. HipChat after all is a big upside of the Atlassian stock. If HipChat fails dramatically, Atlassian won’t be hurt much. They’ll just make sure to integrate with the winner smoothly. If they win in this game, they’ll be another company. Group chat will rise as email did. This trend is massive.
“If I had to explain why Atlassian’s valuation will double or triple within the next 5 years, I would bet on HipChat.”
What about the risks?
The side I am less sure about is (very) big enterprises. Atlassian has no sales force. My company is their sales force. And about 400 other Atlassian partners are. We are one of Atlassian’s risk factors, I guess.
Atlassian makes a significant part of their money directly. Only a small part is done through partners. So it’s again nothing to worry about. It’s more that partners can help win the very big and big deals. This is reality today. That structure allows Atlassian to scale much faster than other companies can. Even Google is weaker in that partner ecosystem area (in my humble opinion and this is a speculation). Microsoft is probably much stronger here.
But Atlassian needs to get deeper into big corporations. And to do that they need to leverage partners. They do try themselves a little. But it’s a lightweight investment and not the usual enterprise sales approach that is still common today.
Atlassian is also following Microsoft with their “cloud first” strategy. While I understand that Microsoft needs to do this, I think, that Atlassian should invest much more on the server side still. Most customers (especially the big ones) still live behind the firewall and not in the cloud. This is as true for the German as for the U.S. corporations.
I admit that I cannot tell about the overall turnover impact when you compare how much Atlassian can grow in the cloud and how much they can still exploit behind the firewall. But in the world I live in, the big bucks still lay behind the firewall. And that’s true for Atlassian’s turnover as of now as well.
It is probably the most interesting part in the next earnings calls to learn how good cloud turnover does against server business. I would love to see server investments to be sky high for a couple of years.
So Atlassian being a public company has opened up a whole new level of information, discussion and views for me as a partner. If you are interested, I am happy to chat.
I am just one individual. This is not a company statement. The post above was written in one piece. No long analysis is the basis of this. I could be completely wrong about almost everything. I do not own any Atlassian stocks. But I am the CEO of one of Atlassian’s biggest partner worldwide. So I am biased and I want them to take over Microsoft (hostile takeover please) and then buy Google. Please take all of the above with a grain of salt.
Update on Feb 4th: Made some edits and corrected typos that were reported by customers and co-workers.