Atlassian shares fall 17% as forecast slower subscription growth overshadows profit growth

Atlassian Corp. shares fell more than 17% in after-hours trading today as the Australian collaboration software company forecast slower subscription growth.

First quarter fiscal 2027 results beat analysts’ estimates. The stock had nearly doubled between Atlassian’s August report and the end of October.

For the quarter ended Sept. 30, Atlassian reported adjusted earnings per share of $1.65, up from $1.04 in the year-ago quarter, on revenue of $1.772 billion, up 24% year-over-year. Analysts expected $1.43 per share on revenue of $1.71 billion.

Most of the growth came from the cloud, where revenue rose 31% to $1.302 billion. According to the shareholder letter, customers continued to add Jira and Confluence licenses in the quarter, including in business teams well outside of software development.

Growth in Data Center, Atlassian’s self-managed product line that will be discontinued in March 2029, slowed to about 5%, bringing revenue there to $391 million. The company said these customers are expanding less as they plan their move to the cloud.

Annual recurring subscription revenue was $6.812 billion at the end of September, up 22.5%. Remaining performance obligations increased 44% to $4.746 billion. According to the company, this increase is driven by corporate customers whose contracts are becoming larger and extend over several years.

Atlassian made unadjusted money for the second straight quarter, with net income of $91 million, or 35 cents per share. CFO James Chuong attributed this to keeping costs under control while increasing revenue. Free cash flow rose to $463 million on strong revenue, and Atlassian returned $581 million to shareholders through buybacks.

On the product side, more than 87% of enterprise cloud customers now use Rovo, the company’s artificial intelligence assistant. Upgrades to the Teamwork Collection package increased sevenfold compared to last year to more than 3,000 customers. Annual recurring revenue from the larger Service Collection package now exceeds $1 billion and is distributed across more than 70,000 customers.

CEO Mike Cannon-Brookes used the results release to argue that enterprise AI has reached “an inflection point.” Model power alone no longer differentiates anyone, he said. Platforms that provide a common working context for humans and AI agents will, in his opinion, come out on top, and Atlassian has “never been better positioned” to be one of them.

For the second quarter, Atlassian expects revenue of $1.825 billion to $1.835 billion, slightly above the $1.82 billion forecast by analysts, with cloud revenue growth of about 27%.

Most of Atlassian’s fiscal 2027 targets were increased slightly in the update. The company now expects full-year sales growth of about 13.75%, three-quarters of a point above its August forecast. Because customers have postponed data center purchases until fiscal 2026 following the company’s announcement of its discontinuance, this year’s revenue comparisons are more difficult.

Overall revenue growth is expected to pick up again in fiscal 2028, Atlassian said. Investors sold the stock at a different price. The company expects annual recurring subscription revenue growth to slow to about 18.5% by the end of the fiscal year, compared to the 22.5% it just reported.

Photo: Atlassian