Last week, Atlassian (Nasdaq: TEAM), a leading provider of team collaboration and productivity software, reported results for a strong fourth quarter that surpassed estimates. It has executed beautifully on its ecosystem strategy that is now reaping benefits. But there is still room for improvement.

Atlassian’s Financials

Fourth quarter revenue grew 30% to $559.5 million, ahead of the market’s forecast of $521.6 million. Net loss was $213.1 million, compared with a net loss of $385.2 million a year ago. Adjusted EPS was $0.24, better than the market’s forecast of $0.18. Cash and cash equivalents, and short-term investments at the end of Q4 2021 totaled $1.2 billion.

By segment, Subscription revenues grew 50% to $385.5 million driven by cloud transition. Large customer
cloud migrations (1000+ users) were up 70% quarter-over-quarter, and cloud revenue was up 47%. Maintenance revenues grew 7% to $131.1 million. Perpetual license revenue declined 54% to $9.2 million. Other revenues, which includes revenue from marketplace apps, increased 13% to $33.7 million.

Fiscal year 2021 revenue grew 29% to $2.1 billion, beating analyst estimates of $2.05 billion and net loss almost doubled to $696.3 million. Non-IFRS net income per diluted share was $1.40 compared to analyst estimates of $1.33 per share.

For the first quarter, Atlassian expects revenues of $575-$590 million with an adjusted EPS of $0.38- $0.39. Analysts had estimated earnings of $0.29 per share on revenue of $536.3 million.

Atlassian’s Ecosystem Growth

Atalssian is growing an entire ecosystem of channel partners, marketplace partners or developers, and integration partners to bolster its focus on three core markets of agile development, ITSM, and work management for all.

Atlassian works with over 700 Solution Partners and Global Alliance Partners who provide a higher-touch sales and rollout experience and drive over one-third of its total revenue. Cloud sales from channel partners are up 300%.

Over 25,000 developers contribute to the Atlassian Marketplace. Hundreds of profitable startups have built and scaled SaaS offerings in partnership with Atlassian. Over 600 apps were added to the Marketplace in FY21 and over 60% of Atlassian customers use an app built by developers from the Marketplace.

Atlassian recently announced that Forge, its next-generation cloud app development platform, is generally available. Customers and developers can rely on Forge’s infrastructure, storage, and function-as-a-service to build cloud apps to extend, customize, and integrate with Atlassian cloud products. Forge reduces the cost and complexity for developers to build cloud apps. Over 500 apps have already emerged from Forge’s early access program.

Atlassian’s cloud-first focus and decision to expand the free tier are now paying dividends. Net new customers grew by 23,311 to 236,118 in Q4 and 60,000 in FY21. The amount that these customers are spending is also increasing. In FY21, customers spending more than $50K grew 40% to 8,246, over $500K grew 54% to 412, and over $1M grew 71% to 178. About 100K customers were on Jira Software, 75K were on Confluence, and 30K were using Jira for IT service management (ITSM).

All these pieces of its ecosystem strategy help Atlassian cross-sell and upsell its broadening portfolio to a growing customer base where the average spend per customer is inching over $10K per year and resulting in about 30% growth in revenue.

However, one area that still has enormous upside is marketplace revenue with a growth rate of just 13% in Q4. This can grow MUCH faster. The success that Atlassian is seeing appears to come from larger solution partners rather than the marketplace vendors. Atlassian can amplify its growth by training its developer ecosystem not just in technical skills but in business skills. Read more in my recent PaaS post on how to train a developer ecosystem.

The market is pleased with Atlassian’s performance. Its stock is currently trading at $329.42 with a market capitalization of $82.4 billion. It hit a 52-week high of $349.5 last week following its results. It hit a 52-week low of $160.01 in August last year.