UBS Analysts Express Caution
In the wake of Atlassian’s (NASDAQ:TEAM) robust quarterly results unveiling impressive revenue growth across its Data Center and Cloud divisions, UBS analysts have raised concerns about the sustainability of these upward trajectories, especially within the Data Center sector.
Cloud Migrations and Seat Expansions
“Of the 64% Data Center growth reported, 36 percentage points stemmed from migrations (both from Server and to Cloud) and 8 percentage points from preemptive seat expansions to circumvent impending price hikes,” noted UBS analysts Karl Keirstead, Jeff Hickey, and Jack Fyda. “While 20% growth supported by price hikes and organic seat expansions is commendable, the looming deceleration in Data Center growth next year remains an unanswered query.”
Long-Term Migration Projections
“Management has indicated that the timeline for major customers transitioning from Data Center to the cloud may span ‘a few years’,” they elaborated.
Price Target Reduction
Despite maintaining a Neutral rating on Atlassian, UBS opted to trim its 12-month price target on the stock by 20%, revising it downward from $250 to $200.
Market Reaction and Performance
In reaction to this assessment, Atlassian encountered a decline of 7% during premarket trading on Friday.
Strong Fiscal Performance
Atlassian surpassed expectations for the third quarter of fiscal 2024 upon the release of its earnings report late on Thursday.
Leadership Transition
The forthcoming departure of co-founder and co-CEO Scott Farquhar by August 31 was noted, yet UBS underlined that this change is not anticipated to herald significant alterations for the software development and IT service management enterprise, as fellow co-founder Michael Cannon-Brooks will continue to steer the company.
Upcoming Investor Day
Atlassian is set to hold an Investor Day next Wednesday at 3 p.m. EST during its user conference, Team ’24, taking place in Las Vegas. The event will be broadcast live through the following link.
