Atlassian (NASDAQ: TEAM) is the enterprise software company behind popular platforms like Jira and Confluence, which help organizations boost productivity. Its stock is trading down 64% from the all-time high it set during the tech frenzy in 2021, with a relatively expensive valuation combined with slowing revenue growth contributing to the decline.
However, Atlassian could unlock a new phase of growth thanks to artificial intelligence (AI), which has the potential to transform all of its products.
The Wall Street Journal tracks 27 analysts who cover Atlassian, and they have reached a bullish consensus -- not a single one recommends selling. Should retail investors take heed of their optimism?
Atlassian is laser-focused on AI
Jira and Confluence are Atlassian's flagship products. Jira was originally designed as a workflow tool to help software developers manage and deliver their projects, but it has become increasingly popular with non-technical teams who use it to collaborate on work of all kinds. Confluence is like a virtual workspace where employees from multiple departments can post information and discuss ideas.
Atlassian Intelligence is a suite of more than 30 AI tools designed to enhance Jira and Confluence. It can be a powerful virtual assistant capable of identifying bugs and even software dependencies, which can save developers untold amounts of time. Plus, it's capable of instantly generating and summarizing texts on command, which is useful in Confluence.
The company said monthly active usage of Atlassian Intelligence rose threefold during its fiscal 2024 fourth quarter (which ended June 30) compared to just three months earlier.
Earlier this year, Atlassian launched a new AI product called Rovo, which it describes as an always-on teammate. It features a unique search tool that can pull data from across an entire organization, even beyond Atlassian's apps, to deliver the most accurate information. It also serves as a chatbot that is capable of holding conversations with employees about their work to assist them in completing tasks.
Rovo is still in beta mode, but Atlassian says it will be priced separately from its other products upon release, creating a new revenue stream for the company.
Image source: Getty Images.
Solid growth, led by high-spending customers
Atlassian generated a record $4.4 billion in revenue during its fiscal 2024, up 23.3% from the prior year. While that was a robust growth rate, it was a slowdown from previous years; the company's revenue of $3.5 billion in fiscal 2023 was up 26%, and fiscal 2022's $2.8 billion was up by 34%. That slowing (but still strong) revenue growth rate is a key reason why Atlassian's stock price has declined.
Customers can deploy its software in a couple of different ways. Many large organizations either use their own servers or those managed by major data center operators like Microsoft and Amazon . However, it's simpler and more cost-efficient for smaller customers to use Atlassian's cloud servers.
As a result, cloud has become Atlassian's largest segment by revenue, and it grew by 31% in the final quarter of fiscal 2024 -- tied for the fastest pace of the year. As it becomes an even larger part of Atlassian's revenue base over time, it could help the company's top-line growth reaccelerate.
Atlassian ended fiscal 2024 with over 300,000 customers. However, 524 of them were spending at least $1 million on its software products annually, which was up 48% year over year. It's a sign that larger, more complex organizations are finding value in the company's productivity tools, and their spending could expand even further as new AI software products like Rovo go mainstream.
Wall Street is bullish on Atlassian stock, but is it a buy?
The Wall Street Journal tracks 27 analysts covering Atlassian, and 13 have given it buy ratings. Another three are in the overweight (bullish) camp, while 11 recommend holding. None recommend selling. Those analysts have an average price target of $207.84, 27% higher than where the stock trades as of this writing. So, should investors buy it now?
Atlassian stock was trading at a price-to-sales (P/S) ratio of around 50 when it peaked in 2021, which was incredibly expensive. The combination of its share price decline and revenue growth in the years since then has sent that P/S ratio tumbling to 9.7. That's near its cheapest level as a public company.
TEAM PS Ratio data by YCharts.
From that perspective, Atlassian stock looks like a good value. The company's cloud segment might also support a higher stock price because it will be a key growth driver, and it had a strong finish to fiscal 2024.
Plus, Atlassian plans to more than double its total annual revenue to $10 billion over the long term, so its stock might look especially cheap to investors with a time horizon of at least five years.
Finally, AI will continue to be a big tailwind for Atlassian as it finds unique ways to apply the technology. The company is likely to launch several new AI products over time that could unlock new revenue streams that aren't even being considered by analysts right now.
Therefore, given Atlassian's current valuation, its cloud growth, and its long-term opportunities, I agree with Wall Street's assessment. The stock could be a great buy for investors right now.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Atlassian, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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