Atlassian's 31% Cloud Growth Leaned on Accounts It Already Had
Atlassian posted $1.77 billion in Q1 revenue, up 24%, and swung to an operating profit. A March cut of 1,600 roles was meant to fund enterprise sales.
TL;DR
- Atlassian's fiscal Q1 cloud revenue rose 31% to $1.3 billion, and operating income swung to $189 million from a loss.
- Most of the growth came from seats, Collection upgrades and Data Center migrations in existing accounts, after March layoffs Atlassian said would fund enterprise sales.
- Atlassian guided full-year revenue growth near 13.75%, and the test now is whether expansion selling holds up as the migration pool shrinks.
Atlassian is growing by selling more to the customers it already has.
For the September quarter, Atlassian reported revenue of $1.77 billion, up 24%, and cloud revenue of $1.3 billion, up 31%. GAAP operating income was $189 million, against a $96 million loss a year earlier.
Cloud looks like it now pays for itself. The release and the earnings call show something messier, with two things happening at once.
Most of the growth came from customers Atlassian already had. They bought more seats, upgraded to bundled Collections and moved off Atlassian's self-hosted Data Center product.
The profit also came after a March restructure that cut about 1,600 roles, roughly 10% of staff. In March, Atlassian said the cuts would "self-fund further investment in AI and enterprise sales."
Selling deeper into existing accounts
In its shareholder letter, Atlassian says Teamwork Collection passed 3,000 customers, up sevenfold, and Service Collection passed 70,000. Seat growth from competitive wins rose more than 40%.
Remaining performance obligation, the contracted revenue not yet recognized, grew 44% to $4.7 billion. The letter describes the motion as customers moving "from one to multiple to a full Collection."
The call shows how much room is left. Atlassian is in 85% of the Fortune 500, and the CFO said on the earnings call that this "represents really just about 10% of revenue." Customers paying more than $1 million grew more than 30%.
The expanding accounts named on the call were Infosys, SAP, Workday and Westpac, and the CFO said Atlassian is still adding enterprise sales capacity. Atlassian has also expanded its Forward Deployed Engineering program.
Why growth is slowing
Atlassian also reported net income of $91 million, against a $52 million loss in the same quarter a year earlier, and free cash flow of $463 million, up 304%. Shares still fell after hours.
Guidance is where the quarter gets less flattering. The CFO said Data Center migrations added roughly mid-to-high single digits to cloud growth, and that pool shrinks as customers finish moving.
Atlassian guided full-year revenue growth of about 13.75% after Q1's 24%. It also guided Q2 cloud growth of about 27% and a Data Center decline of about 16% for the year.
On the call, it said subscription ARR growth will slow over the next three quarters. Subscription ARR stood at $6.81 billion this quarter.
Growth is slowing, but the mix holds. Without the migration boost, we estimate cloud still grew roughly 22% to 26%. The bundle, seat and seven-figure-account numbers all describe selling more to the same buyers. The quarterly figures are company-reported, and the Fortune 500 revenue share is the CFO's remark on the call.
Watch Atlassian's next quarterly report for cloud growth near the 27% it guided, and for whether subscription ARR growth slows the way the company said it would.
