Goldman Sachs Upgrades Atlassian, Encouraged By Outlook

The fourth-quarter consensus billings estimate for Atlassian Corporation PLC TEAM reflects low deferred revenue expectations and appears conservative, according to Goldman Sachs.

The Analyst

Heather Bellini upgraded Atlassian from Neutral to Buy and raised the price target from $115 to $125.

The Thesis

At $361 million, the consensus billings estimate for the fiscal fourth quarter represents 30-percent year-on-year growth, but is lower than Goldman Sachs’ projection of $376 million, Bellini said in the Wednesday downgrade note. (See her track record here.)

Deferred revenue seasonality should normalize following the previous quarter’s underperformance, the analyst said.

Atlassian has a “unique low-friction online sales model" that reduces discounting as well as S&M expense, Bellini said. This means the software company is able to reallocate its S&M savings to R&D, which positions it well for price hikes as it enhances its product offerings, she said.

Even after two years of price increases, Atlassian’s offerings represent a high value-to-price ratio for customers, the analyst said.

In the longer-term, the penetration of Atlassian’s products in the IT organization will present natural cross-sell and expansion opportunities with other organizations, including customer service and HR, according to Goldman Sachs.