To The Moon

$Atlassian Corporation PLC(TEAM)$

Atlassian Corporation (NASDAQ: TEAM), the enterprise software giant best known for its collaboration tools like Jira, Confluence, and Trello, has seen its stock slump toward 52-week lows. This has many investors wondering whether the dip represents a buying opportunity in a high-quality growth company—or a warning sign that should not be ignored.

In this article, I’ll break down Atlassian’s latest earnings results, review its customer growth and financial performance, and provide my updated discounted cash flow (DCF) valuation and forward P/E analysis. I’ll also address key risks investors should be aware of. By the end, I’ll share my verdict on whether TEAM stock is a buy, hold, or sell at today’s prices.

Performance Overview: A Strong FY2025 Despite Stock Weakness

Atlassian’s management team delivered solid financial results for fiscal year 2025. Revenue reached $5.2 billion, with free cash flow of $1.44 billion. This performance once again showcased Atlassian’s adherence to the “Rule of 40”—a benchmark growth investors often use, which combines revenue growth and profitability.

When you divide $1.44 billion in free cash flow by $5.2 billion in revenue, the company is producing a healthy free cash flow margin, reinforcing that Atlassian is not just growing, but also highly efficient at converting revenue into shareholder value.

Management also laid out a bold target: sustaining 20% annual revenue growth through FY2027. For a company already at multi-billion-dollar scale, that’s an aggressive yet promising trajectory.

Despite these fundamentals, the stock price has lagged, leaving investors scratching their heads. The disconnect between fundamentals and share price performance often signals either a short-term market overreaction or a deeper risk investors are pricing in. Let’s dig further.

Customer Growth and Value Proposition

Atlassian has consistently positioned itself as a mission-critical enterprise platform. In Q4 FY2025, the company signed a record number of contracts exceeding $1 million in annual contract value (ACV)—more than double the number from the prior year.

Additionally, the company reported 2.3 million AI-powered users, up 50% quarter-over-quarter, highlighting the accelerating adoption of its AI-enhanced features. The cloud net revenue retention rate of 120% stands out as a particularly strong indicator of customer value.

For context, a 120% retention rate means existing customers are spending 20% more in their second year compared to their first year. This is not just about keeping customers, but about expanding revenue per customer—a sign of strong product stickiness and scalability.

This level of retention is rare in software, and it highlights Atlassian’s deeply embedded role within enterprise workflows. Once a company integrates Jira for project tracking or Confluence for documentation, switching costs become extremely high, making Atlassian’s products mission-critical.

Why Customer Value Matters for Long-Term Investors

The concept of customer value proposition is one of the most overlooked yet crucial elements in evaluating long-term investments. Companies that provide superior value to customers tend to enjoy stronger retention, pricing power, and long-term revenue growth.

To illustrate, consider the contrast with traditional movie theaters like AMC. Theatrical releases are increasingly struggling because consumers see more value in streaming platforms like Netflix, which provide a month’s worth of entertainment for less than the cost of one movie outing for a family of four.

In Atlassian’s case, the opposite dynamic exists. Its collaboration tools directly improve productivity, streamline workflows, and save enterprises time and money. From my own experience working in corporate environments, I’ve used tools like Jira and Confluence, and found them indispensable. The intuitive interface, productivity enhancements, and integration capabilities provide clear value that organizations are willing to pay for—and expand usage over time.

This compelling customer value proposition underpins Atlassian’s strong retention rates and continued revenue growth.

The Free Cash Flow Decline: A Timing Issue, Not a Structural Risk

One point that spooked some investors was the reported 13% year-over-year decline in free cash flow in Q4, which came in at $360 million. On the surface, this looks like a worrying sign of weakening financial performance.

However, management clarified that the decline was primarily due to timing differences, particularly stronger collections in the prior year related to server and support contracts. This distinction is critical.

• Timing issues (e.g., changes in collections, working capital fluctuations) cause temporary free cash flow swings but do not fundamentally weaken the business model.

• Structural declines (e.g., deteriorating margins, slowing customer growth) are far more concerning, as they indicate long-term erosion in profitability.

In Atlassian’s case, the decline was clearly a timing-related anomaly, not a structural deterioration. For long-term investors, this should be viewed as a temporary blip rather than a red flag.

Financial Highlights and Valuation

Let’s move to valuation.

Discounted Cash Flow (DCF) Valuation

Using my proprietary DCF model, I estimate Atlassian’s fair value at $343 per share. With shares currently trading around $172, the stock appears to be significantly undervalued.

Even when applying a conservative margin of safety, the results still suggest the market is underpricing Atlassian’s future cash flow potential.

Forward Price-to-Earnings (P/E) Ratio

On a forward earnings basis, Atlassian trades at a P/E of 41. While this may sound elevated compared to traditional sectors, for a high-growth, cash-flow-rich software company, this valuation is actually near the lowest multiple TEAM has seen in the past year.

When combined with:

• a 33% free cash flow margin,

• 20% expected annual revenue growth,

• and one of the strongest retention rates in enterprise SaaS,

…the current valuation looks much more attractive than the headline P/E multiple suggests.

Risks Investors Should Consider

No investment is without risk, and Atlassian faces a few worth mentioning:

1. Competition in Collaboration Software Companies like Microsoft (Teams), ServiceNow, and smaller SaaS upstarts continue to expand their offerings in the enterprise collaboration space. While Atlassian has a strong foothold, competitive pressure could limit pricing power.

2. Execution Risk on Growth Targets Management’s guidance of sustaining 20% growth through 2027 is ambitious. Any slowdown could trigger sharp multiple compression, given the high-growth expectations baked into valuations.

3. Macroeconomic Sensitivity As a global SaaS provider, Atlassian is not immune to economic cycles. IT budget tightening, currency fluctuations, or macro shocks could temporarily dampen demand.

4. Cloud Transition Costs While the shift to cloud is driving growth, it also comes with upfront investment and migration complexities. If execution falters, near-term margins could be pressured.

Investment Verdict: A Buy on the Dip

After weighing the financial performance, customer metrics, valuation, and risks, my outlook for Atlassian remains bullish.

• DCF fair value: $343 per share

• Current price: $172

• Forward P/E: 41, near yearly lows

• Retention rate: 120%, one of the best in SaaS

• Free cash flow margin: 33%

Atlassian combines strong fundamentals with a deeply embedded customer base and a compelling long-term growth runway. Despite short-term noise, the stock appears undervalued at current levels, especially for investors with a multi-year horizon.

My rating: BUY at today’s market prices.

Key Takeaways for Investors

1. Atlassian delivered another strong fiscal year with $5.2B in revenue and $1.44B in free cash flow, showcasing both growth and profitability.

2. Customer adoption remains robust, with record $1M+ deals and a 120% net retention rate.

3. The Q4 free cash flow dip was a timing issue, not a structural decline.

4. Valuation models suggest the stock is trading at a deep discount to fair value.

5. While risks exist—competition, macro headwinds, execution challenges—the long-term fundamentals remain strong.

For long-term investors, Atlassian stock near its 52-week lows looks like an attractive buying opportunity rather than a value trap.