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Why Atlassian Corporation PLC Is Plunging Over 10%

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Market teams up to sell Atlassian (get it?)

Atlassian Corp PLC (NASDAQ: TEAM) is watching its stock plunge over 10% this morning following the release of its Q3 2018 earnings results after the market closed yesterday. Here’s a quick look at what the company accomplished in the quarter compared with the same quarter a year ago:

Metric Q3 2018 Q3 2017 Change
Revenue $223.72 million $159.91 million 39.9%
Non-IFRS operating income $38.37 million $24.49 million 56.6%
Non-IFRS net income $24.59 million $18.93 million 29.9%
Non-IFRS diluted earnings per share (EPS) $0.10 $0.08 25.0%
Free cash flow $86.38 million $68.30 million 26.5%

Atlassian beat analysts’ expectations on both the top and bottom lines, which called for revenue of $218 million and non-IFRS diluted EPS of $0.08, equating to an all-around great quarter for the company.

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However, the sentiment turned negative when Atlassian provided its outlook on the fourth quarter; the company stated that it expects revenue in the range of $232 million-$234 million, which surpassed analysts’ expectations of $231 million, but it expects non-IFRS diluted EPS of approximately $0.12, which came up short of the $0.14 estimate of analysts.

It was a great quarter overall for Atlassian, and its full-year outlook calls for significant growth compared to 2017, so I think the sell-off more than 10% based on its Q4 outlook may be overdone, especially when you consider that Atlassian is known for under-promising and over-delivering (it projected revenue of $217 million-$219 million and non-IFRS EPS of approximately $0.08 for the third quarter, which it just exceeded by a wide margin). But remember that small, fast growing companies sometimes are off on their investment timing by a quarter or two and end up with a profit shortfall.  Keep an eye on this fast grower, a rebound may not be far off.

-JP Gravitt

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