Goldman Sachs Upgrades Atlassian, Encouraged By Outlook

The fourth-quarter consensus billings estimate for Atlassian Corporation PLC (NASDAQ: TEAM) reflects low deferred revenue expectations and appears conservative, according to Goldman Sachs.

The Analyst

Heather Bellini upgraded Atlassian from Neutral to Buy and raised the price target from $115 to $125.

The Thesis

At $361 million, the consensus billings estimate for the fiscal fourth quarter represents 30-percent year-on-year growth, but is lower than Goldman Sachs’ projection of $376 million, Bellini said in the Wednesday downgrade note. (See her track record here.) 

Deferred revenue seasonality should normalize following the previous quarter’s underperformance, the analyst said. 

Atlassian has a “unique low-friction online sales model" that reduces discounting as well as S&M expense, Bellini said. This means the software company is able to reallocate its S&M savings to R&D, which positions it well for price hikes as it enhances its product offerings, she said.

Even after two years of price increases, Atlassian’s offerings represent a high value-to-price ratio for customers, the analyst said. 

In the longer-term, the penetration of Atlassian’s products in the IT organization will present natural cross-sell and expansion opportunities with other organizations, including customer service and HR, according to Goldman Sachs. 

Price Action

Atlassian shares were trading up 1.66 percent at $119.11 at the time of publication Thursday.

Related Links:

Atlassian Q2 Earnings Preview

Analysts Hold Stances On Atlassian Following A 'Ripper' Of A Quarter

Photo courtesy of Atlassian.