Billion Dollar Unicorns: Atlassian Prepares to Take on ServiceNow

According to a Research and Markets report, the global enterprise collaboration market is estimated to grow 11% annually over the next five years to $53.83 billion by 2023 from $31.74 billion in 2018. The market is dominated by large enterprises, but the growth in SME adoption is expected to grow at higher rate in the coming years as these companies move to SaaS-based technologies as well. A leading player in the market is Billion Dollar Unicorn Atlassian (Nasdaq: TEAM) that is growing fast to bring in over a billion dollars in annual revenue.

Atlassian’s Financials

Atlassian recently announced its first quarter results for fiscal 2019. Revenues for the quarter grew an impressive 37% over the year to $267.3 million. The market was looking for revenues of $260 million for the quarter. Adjusted EPS of $0.20 was also better than the Street’s estimated $0.19. But on a GAAP basis, the company reported a loss of $242.4 million due to revaluation of debts.

By segment, revenues from subscription services grew 55% to $134.1 million and maintenance segment grew 22% to $92.7 million. Perpetual License revenues reported a 12% growth to $21.8 million and Other was up 39% to $18.7 million.

Among operating metrics, it ended the quarter with a total customer count, on an active subscription or maintenance agreement basis, of 131,684, an addition of nearly 5,890 net new customers during the quarter.

For the current quarter, Atlassian expects revenues of $287-$289 million, and a non-IFRS EPS of $0.21. It expects to end the year with revenues of $1.175-$1.183 billion and non-IFRS EPS of $0.78. The Street was looking for revenues of $281 million and an EPS of $0.20 for the quarter.

Atlassian’s IT Operations Expansion

Atlassian has been reorganizing its business portfolio to diversify its market offerings. Recently, it sold its corporate team chat businesses to Slack Technologies. The sale included the IP for its Stride and Hip Chat offering for an undisclosed sum. Atlassian had been in the messaging market for over six years and was facing significant competition from players like Microsoft, which has been expanding aggressively in the market. Earlier this year, Microsoft had launched its workplace collaboration tool Team.

Atlassian instead now plans to focus its efforts in the IT operations segment. As part of this effort, it recently introduced Jira Ops, an end-to-end incident management platform that will serve as a unified incident command center for IT and software teams. It will act as the central place for these teams to coordinate work during an incident. The service comes pre-integrated with other web incident management apps including Slack, PagerDuty, StatuPage, xMatters, and OpsGenie.

To further strengthen the offering, Atlassian also announced the $295 million acquisition of OpsGenie. Falls Church, Virginia-based OpsGenie was founded in 2012 to build a platform that helps companies to better plan for and respond to software and website service disruptions. When the system detects an outage, OpsGenie’s platform quickly routes alerts the appropriate IT teams, thus accelerating diagnosis, resolution, and reducing downtime. It was a privately held company and did not disclose its financials. According to Crunchbase, it had raised $10 million from Battery Ventures at an undisclosed valuation in 2016.

Through the acquisition, Atlassian will have access to OpsGenie’s more than 3,000 customers including names like Expedia and 7Eleven. While both Jira Ops and OpsGenie’s products are currently separate, Atlassian plans to bring them together soon. It plans to use OpsGenie’s alert system to work with Jira Ops and Atlassian’s Statuspage product so as to communicate with employees and customers about downtime.

Atlassian already has other products lined up that cater to the IT market. BitBucket is its code management repository, StatusPage is the status notification tool, Jira Software acts as a project management offering, and Jira Service Desk is its IT service management offering. The new addition of OpsGenie and Jira Ops add incident alert and management capabilities to its comprehensive portfolio.

Gartner estimates that the IT operations market will be a $38 billion industry by 2022. Currently, ServiceNow dominates the industry with an estimated 40% market share. But Atlassian’s bold measures are bringing it in direct competition. Atlassian believes that it will have advantage over ServiceNow on account of its cheaper price point.

I would like to know from users if they would be willing to drop ServiceNow for Atlassian’s offering? What is it that Atlassian will need to do differently to gain market share from ServiceNow?

Atlassian’s stock is trading at $70.18 with a market capitalization of $16.6 billion. It had peaked to a 52-week high of $98.21 earlier last month and has recovered from the 52-week low of $43.11 that it had fallen to in December last year. While the stock has seen a decline in the past few months, analysts believe it has more to do with a market correction than with Atlassian’s fundamentals. Most SaaS stocks have reported a decline recently, and Atlassian is part of the same industry.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.

This segment is a part in the series : Billion Dollar Unicorns