Atlassian Stock Surges as Growth Rebounds

Shares of the enterprise software company Atlassian (TEAM 20.06%) jumped significantly on Friday following strong financial results for its fiscal first quarter of 2025. By 10:30 a.m. ET, the stock had climbed about 15%, even reaching a peak increase of 22% earlier in the day.

Atlassian's Growth Rebounds

Atlassian's software continues to attract attention, demonstrated by ongoing customer acquisition and increased spending. In the first quarter, the company reported nearly $1.2 billion in revenue, marking a 21% increase from the same period last year and surpassing analysts' expectations. Notably, cloud revenue surged by 31% year over year, indicating the successful push by management to encourage cloud adoption among customers.

The solid performance in Q1 is complemented by revised guidance from management for the rest of the year. Previously, at the close of fiscal 2024, management had anticipated a full-year revenue growth of 16% for fiscal 2025, with cloud revenue growth expected to be around 23%. However, following the strong results from Q1, management upgraded the overall revenue growth forecast to between 16.5% and 17%. They also increased the anticipated cloud revenue growth to 24%.

The impressive top-line growth is a key factor for investors, and with Atlassian's upward trajectory, it is no surprise that the stock has surged.

Concerns Over Employee Compensation

Despite the positive news, one area of concern regarding Atlassian stock is related to high employee compensation. The company is currently not profitable due to substantial stock-based compensation expenses. While stock-based compensation does not involve cash outflows, Atlassian remains free-cash-flow positive and has been using its cash flow for share repurchases. Recently, the company authorized a new $1.5 billion buyback program. However, it's important to note that share repurchases primarily serve to offset the dilution from stock-based compensation rather than reduce the overall share count.

In Q1, Atlassian experienced a 54% year-over-year decline in free cash flow primarily due to employee bonuses, which are awarded annually. Although this should not be an issue in the upcoming quarter, it is worth watching, especially since the company achieved strong collections in Q1, which might be challenging to replicate in the near future.

Atlassian defends its decisions regarding employee compensation by emphasizing its goal of expanding the business significantly over the long term. As a current or potential shareholder in Atlassian, it may be advisable to keep an eye on employee-related expenses while also taking comfort in the strong growth trends visible at the moment.

Author does not hold any position in mentioned stocks. Please consult your financial advisor before making investment decisions.

Atlassian, Growth, Stocks