Collaboration and productivity software maker Atlassian (NASDAQ: TEAM) recently reported an impressive fourth quarter. But what has impressed analysts the most is its partnership with rival Slack and its decision to get out of the communications market.

Atlassian’s Financials

Revenue in Q4 grew 40% to $243.8 million. Net loss widened to $25.9 million or $0.11 per share from $20.7 million or $0.09 per share a year ago. Non-IFRS net income increased to $33 million or $0.13 per share from $21.6 million or $0.09 per share last year. Analysts expected adjusted earnings of $0.12 per share on revenue of $233.4 million.

By segment, revenues from subscription rose 62% to $117.4 million, maintenance grew 22% to $87.3 million, perpetual license increased 16% to $22.5 million, and other revenues 53% grew to $16.5 million.

During the quarter, Atlassian added 6,6038 net new customers, taking its total customer count to 125,796. It ended the quarter with cash and short-term investments of $1.7 billion, up from $763.9 million at the end of the third quarter. The company raised cash by selling $850 million of senior notes in April.

Fiscal 2018 revenue grew 41% to $874 million. IFRS net loss widened to $119.3 million or $0.52 per share from $42.5 million or $0.19 per share. Non-IFRS net income increased to $118.6 million or $0.49 per share from $84.9 million or $0.36 per share.

For the first quarter, Atlassian expects revenue to be in the range of $258 million to $260 million. IFRS gross margin is expected to be approximately 82%. IFRS net loss per diluted share is expected to be approximately ($0.13), and non-IFRS net income per diluted share is expected to be approximately $0.19. Analysts expected earnings of $0.15 per share on revenue of $252.4 million.

For the fiscal year 2019, Atlassian expects annual revenues in the range of $1.146 billion to $1.154 billion. IFRS Gross margin is expected to be 82%-83%. IFRS Net loss per diluted share is expected to be $0.30. Non-IFRS net income per share is expected to be $0.77. Analysts expect earnings of $0.67 per share on revenue of $1.1 billion.

Atlassian’s New Offerings and Partnerships

Atlassian announced the general availability of Atlassian Access to give administrators company-wide visibility, control, and security over their Atlassian Cloud products while providing users easy access to its collaborative tools. Atlassian Access allows Cloud customers to enable SAML single sign-on and enforce two-step verification and password policies. Pricing for Atlassian Access starts at $3 per user per month.

Atlassian’s strategic partnership with Slack has caught the fancy of analysts. Atlassian currently has two offerings in the real-time communications market: Stride and Hipchat. With this partnership, Slack has acquired the intellectual property for Stride and Hipchat Cloud, both of which will be discontinued. Atlassian will also discontinue Hipchat Server and Data Center and will be working with Slack to provide a migration path for customers of all four products.

Atlassian products and Slack already work well together and they expect to deepen their existing product integrations between Jira Cloud, Bitbucket Cloud, Trello, and Slack, and also expect to build new integrations between Confluence Cloud and Slack. They also expect to partner in the areas of marketing, sales, and channel enablement. Atlassian has also made an equity investment in Slack.

Analysts are upbeat about the partnership. William Blair analyst Bhavan Suri says that the most prominent positive impact of the partnership will come from the R&D and marketing dollars that can now be reallocated to other product areas within Atlassian’s ecosystem instead of trying to capture share in a market where Slack has a significant lead.

Canaccord Genuity analyst Richard Davis says that Atlassian’s management is prudent in realizing that it is futile to fight to catch up when you can sell the assets to Slack, get a silver investment in the pre-IPO firm, and then refocus on Atlassian’s core tech-centric collaboration tools.

Microsoft, look out!

Its stock is trading at $71.08 with a market cap of $15.05 billion. It hit a 52-week high of $79.82 following the results and has been steadily climbing from the 52-week low of $33.16 in September last year.

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