Executive Summary / Key Takeaways

• Atlassian is strategically evolving its product-led growth model to deepen penetration within large enterprises, leveraging its robust cloud platform and interconnected product portfolio (Jira, Confluence, Jira Service Management) to drive wall-to-wall adoption via the "System of Work" philosophy.
• The company's significant investments in its Cloud platform and differentiated AI capabilities, particularly Rovo and Atlassian Intelligence, are key technological differentiators aimed at unlocking enterprise knowledge and accelerating team collaboration, positioning Atlassian favorably in the competitive landscape despite substantial R&D costs.
• Recent financial performance reflects strong Cloud growth (25% in Q3 FY25, 28% for 9 months FY25) and overall subscription revenue growth (19% in Q3 FY25, 27% for 9 months FY25), partially offset by the expected decline in Server maintenance revenue (-100% in Q3 FY25) and complexities in enterprise deal timing.
• Management maintains confidence in achieving a 20%+ compounded annual revenue growth rate through FY27, driven by increasing Data Center to Cloud migrations, paid seat expansion, cross-sell of new products (like Loom, JSM, Rovo), and upsell to higher-value Cloud editions, while acknowledging near-term macroeconomic uncertainty and go-to-market execution risks reflected in conservative FY25 guidance.
• While profitability faces near-term pressure from increased investments in Cloud infrastructure, AI, and enterprise go-to-market, structural efficiency gains in Cloud COGS and a long-term target of >25% non-GAAP operating margins by FY27 underscore the company's commitment to balancing growth and profitability.

Atlassian Corporation (NASDAQ: TEAM) has built its foundation on a unique product-led growth model, empowering teams with accessible, powerful software like Jira and Confluence. This approach, emphasizing self-service and viral expansion, has cultivated a vast customer base exceeding 300,000 organizations across nearly every industry and geography. While historically successful in landing small teams, Atlassian is now strategically focused on unlocking the immense potential within its largest customers, including over eighty percent of the Fortune 500, who currently represent a disproportionately small share of total revenue. This evolution is underpinned by a maturing cloud platform, significant technological advancements, and a refined go-to-market motion aimed at driving deeper enterprise penetration.

The core of Atlassian's offering lies in its interconnected product portfolio, powered by the Atlassian platform and a unique teamwork data model. This "System of Work" philosophy seeks to break down silos and connect technology, IT, and business teams, a critical need for modern, technology-driven organizations. The company's differentiated technology is not just in individual products but in the platform's ability to integrate workflows, automate mundane tasks, and leverage organizational knowledge. Key to this is the investment in a robust enterprise search engine and a sophisticated teamwork graph, which organizes and connects data across Atlassian and third-party applications. These foundational elements are crucial enablers for the company's ambitious AI strategy.

Atlassian's AI approach is two-pronged: Atlassian Intelligence, which embeds AI capabilities directly into existing cloud products (like text generation and smarter search), and Rovo, a distinct AI-powered product built specifically for the AI era. Rovo, now generally available and included in premium and enterprise cloud subscriptions (with standard to follow), leverages the teamwork graph to unlock organizational knowledge and enables "agentic" capabilities, allowing virtual teammates to perform tasks and accelerate human-AI collaboration. Management highlights the differentiation of Rovo in its breadth of agents across various team types (business, IT, software) and its ability to access and connect data across a wide range of applications. The company is rapidly increasing AI usage, reporting over 1.5 million monthly active users of AI across its platform in Q3 FY25, up from over 1 million in Q2 FY25, with AI interactions increasing more than 25x year-over-year. While AI development requires significant R&D investment, management believes AI-related costs will decrease over time through optimization and vendor competition, and the strategic value in driving adoption of higher-value editions and cloud migrations justifies the investment.

The strategic shift towards Cloud offerings is central to Atlassian's future. The company has ceased sales of new Server licenses and ended Server maintenance, successfully migrating millions of users. The focus is now on migrating the large Data Center customer base to the Cloud, a complex, multi-year journey often involving hybrid deployments for large enterprises with numerous instances. To facilitate this, Atlassian has invested heavily in enterprise-grade Cloud capabilities, including data residency in 11 countries, scaling Jira to support up to 50,000 users per instance, achieving FedRAMP Moderate authorization for the Atlassian Government Cloud in Q3 FY25, and introducing Atlassian Isolated Cloud for single-tenant needs. Management emphasizes that Cloud offers the ultimate Atlassian experience, providing access to the latest innovation in analytics, automation, and AI, and customers increasingly view Cloud migration as a matter of "when, not if."

Financially, Atlassian's performance reflects the ongoing strategic transitions and market dynamics. For the three months ended March 31, 2025 (Q3 FY25), total revenues grew 14% year-over-year to $1.36 billion. This was primarily driven by a 19% increase in Subscription revenue to $1.27 billion, fueled by paid seat expansion and price increases. Other revenue declined 29% to $83.84 million, largely due to the expected cessation of Server maintenance revenue. Cloud revenue specifically grew 25% year-over-year to $880.43 million in Q3 FY25, while Data Center revenue grew 7% to $388.52 million, impacted by cloud migrations and fewer multiyear agreements in the quarter. For the nine months ended March 31, 2025, total revenues increased 19% to $3.83 billion, with Subscription revenue up 27% to $3.62 billion and Other revenue down 43% to $212.89 million.

Profitability metrics show the impact of strategic investments. Gross profit for Q3 FY25 was $1.14 billion, representing a gross margin of 84%, up from 82% in the prior year. Non-GAAP gross margin was 86%. Cost of revenues increased 3% in Q3 FY25, primarily due to compensation and stock-based compensation. For the nine months, cost of revenues increased 13%, driven by higher hosting fees, compensation, and software costs, reflecting the increasing scale of the Cloud business. Operating expenses saw significant increases in Q3 FY25: R&D was up 19% to $685.32 million, Marketing and Sales increased 32% to $295.83 million, and G&A rose 7% to $168.35 million. These increases were largely due to higher compensation expenses (including stock-based compensation) and increased advertising/marketing spend, reflecting investments in product innovation and the enterprise go-to-market motion. For the nine months, R&D was up 23% to $1.97 billion, Marketing and Sales increased 29% to $820.12 million, and G&A rose 6% to $483.69 million. The provision for income taxes saw a substantial increase in Q3 FY25 ($63.45 million vs. $7.02 million in Q3 FY24) and for the nine months ($148.08 million vs. $72.31 million), primarily due to changes in the mix of earnings and losses in foreign jurisdictions.

Atlassian maintains a strong liquidity position. As of March 31, 2025, cash and cash equivalents totaled $2.66 billion, and marketable securities were $313.6 million. Net cash provided by operating activities increased by $63.1 million for the nine months ended March 31, 2025, driven by higher customer collections and lower income tax payments, partially offset by increased payments to employees and vendors. Free cash flow also saw increases in both the three and nine-month periods ended March 31, 2025, primarily due to the strength in operating cash flow. The company has access to a $750 million revolving credit facility and has issued $1 billion in senior notes, maintaining compliance with associated covenants. Share repurchases continue under authorized programs, with $391.2 million repurchased in the first nine months of FY25.

In the competitive landscape, Atlassian operates in fragmented, rapidly evolving markets against a diverse set of rivals, including large platform players like Microsoft (MSFT) (Azure DevOps, GitHub), Amazon (AMZN) (AWS Code services), and IBM (IBM), as well as specialized vendors like GitLab (GTLB), ServiceNow (NOW) (in ITSM), Asana (ASAN), Monday.com (MNDY), and Notion. While larger competitors possess greater resources and broader ecosystems (like Microsoft's integration with Office 365), Atlassian differentiates through its deep focus on team collaboration workflows, its product-led growth efficiency, and its unique platform capabilities like the teamwork graph and integrated AI. Atlassian's gross margins (84% GAAP, 86% non-GAAP in Q3 FY25) remain strong, reflecting pricing power and operational efficiency, particularly in Cloud COGS optimization, which management views as a structural advantage. The company's R&D investment, significantly higher as a percentage of revenue compared to many peers, fuels a steady stream of innovation, including new products like Jira Product Discovery, Compass, Guard, Focus, and the integration of Loom, which are critical for expanding use cases beyond software development teams and competing effectively across its target markets. The strategic focus on enterprise, including hiring a Chief Revenue Officer, is a direct response to the opportunity to increase wallet share within large organizations, where competitors like ServiceNow and Microsoft often have established relationships. While this requires building new go-to-market muscles and faces execution risks, the large untapped revenue opportunity ($14 billion within the existing enterprise base alone) provides a compelling rationale.

Looking ahead, Atlassian's management is guiding with prudence for FY25, acknowledging ongoing macroeconomic uncertainty and execution risks related to the evolving enterprise go-to-market motion. However, they reiterate strong confidence in achieving a compounded annual revenue growth rate exceeding 20% through fiscal year 2027. This acceleration is expected to be driven by increasing Data Center to Cloud migrations (projected to contribute mid-to-high single digits to Cloud revenue growth over the next three years), continued paid seat expansion, successful cross-selling of newer products (including Loom, which is expected to contribute 1.5-2 points to FY25 Cloud revenue growth), and upsell to higher-value Cloud editions. Profitability is expected to see some near-term pressure from increased investments, but structural gross margin improvements and a long-term target of greater than 25% non-GAAP operating margins by FY27 remain in sight. Risks include the potential impact of a worsening macro environment on customer spending and deal cycles, challenges in migrating large, complex Data Center customers, intense competition across all markets, potential issues with AI development and regulation, and the complexities of managing rapid global growth.

Conclusion

Atlassian is navigating a pivotal phase, strategically shifting its focus to unlock the vast potential within large enterprises while simultaneously investing heavily in its Cloud platform and cutting-edge AI capabilities. The recent financial results underscore the momentum in the core Cloud and Subscription businesses, even as the expected decline in legacy Server revenue impacts overall growth rates. The company's differentiated technology, particularly the teamwork graph and its application in AI via Rovo and Atlassian Intelligence, provides a compelling competitive edge in helping organizations connect teams and leverage knowledge. While near-term guidance reflects a prudent stance given macro uncertainties and the ongoing evolution of the enterprise go-to-market, management's conviction in achieving a 20%+ long-term growth trajectory, supported by a clear roadmap for Cloud migrations, product expansion, and AI innovation, forms the core of the investment thesis. The ability to successfully execute on the enterprise strategy and translate technological leadership into sustained market share gains against formidable competitors will be key determinants of Atlassian's path towards its $10 billion revenue goal and beyond.