Shares of Atlassian TEAM, a distinguished participant in enterprise collaboration and workflow software program area, have plunged 30.3% 12 months so far (YTD). In the meantime, the Zacks Internet – Software trade wherein the inventory belongs has gained 14.9% within the year-to-date interval.
TEAM inventory has additionally underperformed the Zacks Computer and Technology Sector and S&P 500 index within the YTD interval. The Zacks Laptop and Expertise sector and S&P 500 index have returned 20.7% and 18.4%, respectively, YTD.
Given Atlassian’s repute as a frontrunner within the enterprise collaboration and workflow software program area, this underperformance is disappointing. This raises a vital query for traders — Is it time to promote Atlassian inventory?
Atlassian’s Sluggish Development: A Main Crimson Flag
Some of the alarming traits for Atlassian is its sluggish gross sales progress. The corporate’s gross sales progress has been constantly decelerating within the post-pandemic period. Within the final two fiscals, it had posted income progress within the low-to-mid 20s proportion vary in contrast with mid-30s proportion vary progress in fiscal 2022.
Atlassian’s forecast for first-quarter fiscal 2025 and the consensus estimate for the upcoming two fiscals point out an extra deceleration in income progress. For the fiscal first quarter, it anticipates revenues between $1.149 billion and $1.157 billion, reflecting year-over-year progress of 17.5-18.3%. The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues replicate a year-over-year enhance of 15.9% and 18.9%, respectively.
One other near-term headwind for the inventory is rising analysis and improvement (R&D) prices pushed by elevated funding in synthetic intelligence to boost its product capabilities. Within the final reported monetary outcomes for fourth-quarter fiscal 2024, its non-GAAP R&D bills soared 27.5% 12 months over 12 months in contrast with income progress of 20.5%. Elevated R&D bills negatively impacted profitability, with non-GAAP working margin contracting 200 foundation factors.
Atlassian YTD Efficiency
Picture Supply: Zacks Funding Analysis
Atlassian’s decelerating buyer progress charge makes us more and more cautious about its near-term prospects. The corporate’s prospects have witnessed a CAGR of 14.7% between fiscal 2020 and 2024, a lot decrease than the 30% CAGR it registered between fiscal 2016 and 2020.
Macro Uncertainties & Competitors to Harm TEAM’s Prospects
Atlassian’s near-term prospects is perhaps harm by softening IT spending. Enterprises are suspending their giant IT spending plans resulting from a weakening international economic system amid ongoing macroeconomic and geopolitical points. This doesn’t bode effectively for Atlassian’s prospects within the close to time period.
Though Atlassian has lengthy been a robust contender within the collaboration and workflow software program area, the market has constantly been crowded by trade leaders like Broadcom AVGO, Microsoft MSFT, Alphabet GOOGL, Salesforce and IBM.
Atlassian’s JIRA software program matches options like Broadcom’s Rally Software program, 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 competitors might pressure Atlassian to resort to aggressive pricing to safeguard its market share. It will finally influence its profitability.
What Traders Ought to Do With TEAM Inventory
Atlassian’s near-term prospects is perhaps harm by softening IT spending amid ongoing macroeconomic uncertainties. The decelerating gross sales and buyer progress charge additionally makes us more and more cautious about its near-term prospects. Aggressive investments in R&D to spice up product choices and capabilities may dampen its margins. Additionally, TEAM at the moment has a Worth Rating of F, suggesting a stretched valuation.
Contemplating all these elements, we advise traders to avoid investing on this Zacks Rank #5 (Sturdy Promote) inventory at current.
You may see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
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Atlassian Corporation PLC (TEAM) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
