AI Adoption And Enterprise Cloud Migration Will Unlock Future Opportunity

Key Takeaways

• Deep AI integration and expanded cloud adoption are increasing user engagement, premium upsell opportunities, and operational leverage, supporting future growth and margin expansion.
  
• Broader appeal to non-technical users and strengthened partnerships are widening the addressable market, enhancing platform stickiness, and driving recurring revenue growth.
  
• Atlassian faces execution and adoption risks around cloud migration, AI monetization, cash flow timing, developer demand, and competitive go-to-market strategies, challenging sustained revenue and margin growth.

Catalysts

Through its subsidiaries, designs, develops, licenses, and maintains various software products worldwide.

• Accelerating adoption of AI-powered features and investments in integrating AI deeply into Atlassian's core cloud platform are expanding differentiated use cases, leading to higher user engagement, greater value per customer, and increased opportunities for premium upsells-supporting future revenue growth and margin expansion.
  
• Continued digital transformation and enterprise cloud migration, highlighted by a record number of large enterprise deals and ongoing customer consolidation onto Atlassian's platform, are driving robust paid seat expansion and cross-sell opportunities, positioning the company for sustained top-line growth and improved operating leverage.
  
• Growing traction among non-technical and business users, combined with tailored product innovations (such as Loom and the Teamwork Collection), is materially expanding Atlassian's addressable market and offering significant long-term runway for both revenue growth and higher average contract values.
  
• Strategic partnerships (e.g., with Google Cloud) and a strong ecosystem of third-party developers are strengthening Atlassian's platform and stickiness, potentially increasing recurring revenue streams, and contributing positively to gross margin as the Marketplace and partner ecosystem mature.
  
• Durable growth in software developers and knowledge workers globally (despite industry concerns about AI reducing developer roles) is fueling underlying customer demand for workflow, collaboration, and DevOps solutions-providing a long-term tailwind to revenue and supporting higher net retention rates.

Atlassian Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atlassian's revenue will grow by 18.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.9% today to 3.1% in 3 years time.
• Analysts expect earnings to reach $272.3 million (and earnings per share of $0.31) by about August 2028, up from $-256.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 328.3x on those 2028 earnings, up from -167.7x today. This future PE is greater than the current PE for the US Software industry at 36.3x.
• Analysts expect the number of shares outstanding to grow by 1.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.04%, as per the Simply Wall St company report.

Atlassian Future Earnings Per Share Growth

Risks

• Atlassian's long-term enterprise growth heavily depends on successful migrations from Data Center to Cloud, but management highlights that remaining migrations involve the most complex and largest customers; delays, technical hurdles, or customer reluctance to migrate could slow revenue growth and lengthen sales cycles, impacting recurring revenue expectations.
  
• Increasingly aggressive investments in AI and R&D, while driving innovation, are currently prioritized for usage and adoption over monetization-if new AI and teamwork features fail to convert into materially higher revenue or pricing power, margin expansion and earnings growth could be constrained in the medium
• to long-term.
  
• The company's transition to more backloaded annual billing for large multiyear contracts and timing effects from cloud adoption create near-term free cash flow variability; if this persists, cash generation could lag revenue growth, potentially putting pressure on funding future growth initiatives or maintaining profitability targets.
  
• While Atlassian claims no negative impact yet from code-generation tools and developer role changes due to AI, there is significant ongoing market skepticism; if generative AI-reduces the need for traditional developer seats (contrary to management's beliefs), core product demand could ultimately stagnate or decline, affecting both top-line and net expansion rates.
  
• Execution risk around enterprise go-to-market transformation, as acknowledged by management, remains elevated-if Atlassian's self-serve and partner-heavy sales approach fails to penetrate deeply across business user segments or fend off encroachment from bundled competitor solutions (Microsoft, Google), it may limit ARPU growth and increase customer churn, thus impacting long-term revenue scalability and margin improvement.

Valuation

• The analysts have a consensus price target of $261.521 for Atlassian based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $480.0, and the most bearish reporting a price target of just $196.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.7 billion, earnings will come to $272.3 million, and it would be trading on a PE ratio of 328.3x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $163.99, the analyst price target of $261.52 is 37.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.