Atlassian Remains Promising Investment

In a different life we have been using products of Atlassian Corporation Plc (TEAM) for many years. When they went IPO in December 2015 we jumped at the opportunity to own shares of them.

Initially we didn’t get the timing right (who does?). We bought some shares at USD 30.79 in December 2015 only to see the price drop over the subsequent months. So in June 2016 we bought more at a price of USD 24.90 to improve the average costs per share. This worked out nicely and in August 2016 we sold just enough shares so that the amount equaled what we paid for our second buy. As a result we had an unrealized gain (+111% as of writing).

We continue to be very positive about Atlassian. Their most recent quarterly results, published after market on 18 January 2018. Revenues for the quarter were up by 43% year-over-year. Free cash flow improved by over 50%. The earnings per share (EPS) were heavily influenced by the tax reform in the US. Because of a write-down of their deferred tax assets they took a one-time charge of USD 47.3 million for the quarter. This charge is non-cash. Without one-off charges their EPS would have been USD 0.13 compared to USD 0.09 in the same quarter one year ago.

Despite these very good results, the market didn’t like them and as a result next day, on 19 January, the share price declined by 5.29%. We believe this is exaggerated. Long term we believe that TEAM’s share price will continue to improve along with their revenues and earnings.

We still use their products. And we still like them and are happy to recommend them. It appears as if other companies agree. TEAM’s long-term liabilities are USD 8 million. Capital expenditures in the quarter were USD 4.5 million. The free cash flow was USD 72.3 million which easily covers both. Stock holders equity is 69.6% of Total liabilities and equities. This ratio is very healthy.

While their IFRS result for the quarter is still negative we believe that their success story will continue. We don’t expect the switch to a new CFO will have a negative impact.

Bottom line: We believe that TEAM continues to be a very good investment opportunity and therefore we will hold on to this position long term. We may consider selling some of the position if their share in our portfolio becomes too large.

TEAM as of 20 Jan 2018: USD 53.07

Disclosure: We own shares of TEAM. We have no plans to change this position in the next 48 hours.