Atlassian’s slow growth cuts Cannon-Brookes, Farquhar billions
Mike Cannon-Brookes and Scott Farquhar’s fortunes have taken a $1.8bn hit as shares tumbled 13 per cent after Atlassian warned of slower revenue growth.
More than $US1.2bn ($1.8bn) has been wiped off Atlassian co-founders Mike Cannon-Brookes’s and Scott Farquhar’s respective fortunes after the company said it expected revenue growth to slow down further in the next 12 months, sparking a steep sell off in its shares.
Atlassian shares tumbled 13.99 per cent to $US149 in after hours trade in the US on Thursday night (Friday AEST), after it said it expected to deliver 16 per cent revenue growth in the coming year.
It has told investors in May that it expected to 20 per cent annual revenue growth in the next three years - an expectation that Mr Cannon-Brookes said on Friday still remained a medium term target and Atlassian has “line of sight to surpass $US10bn in annual revenue within the next five years”.
In the year to June 30, Atlassian’s revenue increased 24 per cent to $US4.4bn. This compared with a 26 per cent jump last financial year.
Morgan Stanley analyst Keith Weiss said the 16 per cent revenue guidance for the coming year was “disappointing” and sparked the share sell off.
But Mr Cannon-Brookes - who with Mr Farquhar owns 40 per cent of the $US45bn company, which makes software to enhance collaboration among employees - said he was confident it would deliver earnings growth in coming years, telling investors that for Atlassian’s big customers migrating to the cloud was “a when, not an if for them”.
“That gap between the server migrations ending, and the data centre migrations picking up pace, we have high confidence that will mature,” Mr Cannon-Brookes said.
He reiterated his “deep belief and confidence” of a 20 per cent multi-year revenue target, which he announced at the company’s investor day in May.
“The evolution capability that Atlassian has will continue as we help those largest customers to go increasingly, wall to wall (Atlassian products) across their enterprises. So huge bullishness for me that we’ll hit those numbers that we’ve given out.”
Mr Cannon-Brookes also said the company was closer to gaining access to US public sector customers after gaining ‘in process’ status from the Federal Risk and Authorisation Management Program (FedRAMP).
“You’ve seen from us, prudence and careful thought, as well as hopefully openness and explanation about what it is that we are going through as we focus on the long term.”
The company is now searching for a chief revenue officer to “accelerate” its revenue target and “unlock the massive opportunity with enterprise customers”. Cloud revenue growth this year is expected to be about 27 per cent.
It came as Atlassian chief sales officer Kevin Egan announced he would leave the company at the end of the month to “pursue other opportunities”.
“Scott and I thank Kevin for his leadership of the sales team, and his many contributions to Atlassian over the last three years,” Mr Cannon-Brookes said.
Atlassian cut its full-year loss from $US486.7m to $US300.5m.
“This past year we’ve once again proved to ourselves that we can accomplish big things. We grew revenue to $US4.4bn, generated free cash flow of over $US1.4bn, and surged past 300,000 customers,” Mr Cannon-Brookes said
“We announced transformative innovations for our customers like Rovo, the latest human-AI technology reshaping the way we work. We achieved significant milestones like FedRAMP’s “In Process” status, a huge step towards supporting the US public sector in the cloud, and we wound down support for server.”
Rovo allows companies to build AI “agents” that are capable of performing thousands of basic tasks. It is designed to lift productivity further, tracking corporate goals and objectives via basic verbal prompts.
Atlassian says this means staff will no longer have to wait for half-yearly performance reviews and can adapt to changes in a company’s strategies and priorities more quickly.
In the final three months of the financial year revenue rose 20 per cent to $US1.13bn. This compared with a 23.6 per cent jump in the prior corresponding period.
Analysts were expecting a revenue slowdown after a 23.6 per cent jump in the same quarter last year.
Atlassian’s quarterly loss widened to $US196.9m, compared with $US58.9m in the previous corresponding period.
Mr Farquhar, who oversaw his last earnings report as co-chief executive after he announced his resignation earlier this year, said he was leaving the company knowing it was “incredibly well-positioned to capitalise on the huge opportunities ahead and live its mission of unleashing the potential of every team”.
“I look forward to continuing along the journey, albeit from a slightly different seat,” he said.
“We’ve helped companies big and small all over the world solve some of the most interesting and challenging problems - from the development of electric vehicles and life-saving medical advancements to space exploration. And yet our best days are still ahead.”
In the coming year, Atlassian expects operating margin of -6.0 per cent on a GAAP basis and approximately 21.5 per cent on a non-GAAP basis.
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