Atlassian Up 36% in a Year: Should You Buy, Sell or Hold the Stock?

Atlassian TEAM shares have gained 35.9% in the past year, underperforming the Zacks Computer Technology sector, Zacks Internet Software industry and the S&P 500’s return of 40.3%, 48.4% and 36%, respectively.Given Atlassian's reputation as a leader in the enterprise collaboration and workflow software space, this underperformance is disappointing. This raises a crucial question for investors: Is it the right time to buy, hold or sell Atlassian stock?Atlassian Suffers From Sluggish GrowthAtlassian’s sales growth has been continuously slowing down in the post-pandemic era. In the last two fiscals, it had posted revenue growth in the low-to-mid 20s percentage range compared with mid-30s percentage range growth in fiscal 2022.TEAM’s forecast for second-quarter fiscal 2025 and the consensus estimate for the upcoming two fiscals indicate a further deceleration in revenue growth. For the fiscal second quarter, it anticipates revenues between $1.23 billion and $1.24 billion, indicating year-over-year growth of 16-17%. The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues indicates a year-over-year increase of 16.6% and 19%, respectively.Another near-term headwind for the stock is rising research and development (R&D) costs, driven by increased investment in artificial intelligence to enhance its product capabilities. In the last reported financial results for first-quarter fiscal 2025, its non-GAAP R&D expenses soared 33.9% year over year compared with revenue growth of 21.5%. Increased R&D expenses negatively impacted profitability, with non-GAAP operating margin contracting 40 basis points.Atlassian’s decelerating customer growth rate makes us increasingly cautious about its near-term prospects. The company’s customers have witnessed a CAGR of 14.7% between fiscal 2020 and 2024, much lower than the 30% CAGR it registered between fiscal 2016 and 2020.Atlassian One Year PerformanceImage Source: Zacks Investment ResearchTEAM Faces Macroeconomic HeadwindsAtlassian’s near-term prospects might be hurt by softening IT spending. Enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues. This does not bode well for Atlassian’s prospects in the near term.Although Atlassian has long been a strong contender in the collaboration and workflow software space, the market has continuously been crowded by industry leaders like Broadcom AVGO, Microsoft MSFT, Alphabet GOOGL, Salesforce and IBM.Atlassian’s JIRA software matches solutions like Broadcom’s Rally Software, Microsoft’s Azure DevOps Server and IBM’s Rational. TEAM’s Confluence product competes with Salesforce Chatter and Alphabet’s Google Apps for Work.Intensifying competition could force Atlassian to resort to competitive pricing to safeguard its market share. This will ultimately affect its profitability.Cloud and Digital Transformation Trend Aids TEAMNot everything is gloomy for Atlassian given its position as the global leader and innovator in the enterprise collaboration and workflow software space. The company is poised to grow given the rising demand for automated and improved communication systems within organizations.Furthermore, the company will benefit from the ongoing digitalization of work from organizations and the rapid adoption of cloud services. According to a Mordor Intelligence report, the global enterprise collaboration market is likely to reach approximately $90.6 billion by 2028 from $54.5 billion in 2023, indicating a CAGR of 10.7%.Atlassian is currently focused on selling more subscription-based solutions. This unique business model is helping the company in generating stable revenues while expanding margins. Subscription-based service is a high-margin business as the incremental cost to add a user declines as the company’s user base increases. Subscriptions have been the company’s fastest-growing segment, which has witnessed a CAGR of more than 43% between fiscal 2020 and fiscal 2024.What Investors Should Do With TEAM StockAtlassian’s position as the leader in the enterprise collaboration and workflow software space is likely to aid its growth amid the rising demand for automation and improved communication software. Its strategy to sell subscription-based services will continue to improve the company’s top line.However, Atlassian’s near-term prospects might be hurt by softening IT spending amid ongoing macroeconomic uncertainties. The decelerating sales and customer growth rate also make us increasingly cautious about its near-term prospects. Aggressive investments in R&D to boost product offerings and capabilities might dampen its margins.Considering all these factors, we suggest investors to hold this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Free Report: 5 Clean Energy Stocks with Massive UpsideEnergy is the backbone of our economy. It’s a multi-trillion dollar industry that has created some of the world’s largest and most profitable companies.Now state-of-the-art technology is paving the way for clean energy sources to overtake “old-fashioned” fossil fuels. Trillions of dollars are already pouring into clean energy initiatives, from solar power to hydrogen fuel cells.Emerging leaders from this space could be some of the most exciting stocks in your portfolio.Download Nuclear to Solar: 5 Stocks Powering the Future to see Zacks’ top picks free today.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report Atlassian Corporation PLC (TEAM): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks