Atlassian shares fall 17% as slower subscription growth forecast overshadows earnings beat

Atlassian's shares plummeted over 17% in after-hours trading following a forecast of slower subscription growth from the Australian collaboration software company. Despite beating analyst estimates in its fiscal 2027 first-quarter results, the stock had nearly doubled between Atlassian's August report and late October. For the quarter ending September 30, Atlassian reported adjusted earnings per share of $1.65, up from $1.04 a year earlier, on revenue of $1.772 billion, a 24% year-over-year increase.

Analysts had anticipated $1.43 per share on $1.71 billion in revenue. Most of the growth came from cloud services, where revenue rose 31% to $1.302 billion. Customer adoption of Jira and Confluence seats continued, including in non-software development business teams. However, Data Center revenue, the self-managed product line Atlassian will retire in March 2029, slowed to about 5%, with revenue at $391 million.

Subscription annual recurring revenue stood at $6.812 billion at the end of September, a 22.5% increase. Remaining performance obligations grew 44% to $4.746 billion, with enterprise customers driving the trend through larger, multi-year deals. Atlassian reported net income of $91 million, or 35 cents per share, for the second consecutive quarter-on-quarter earnings.

CFO James Chuong attributed the improvement to cost management amidst revenue growth. Free cash flow hit $463 million, and Atlassian returned $581 million to shareholders via buybacks. Over 87% of enterprise cloud customers now use Rovo, the company's AI assistant. Teamwork Collection bundle upgrades surged sevenfold from a year ago to over 3,000 customers, with Service Collection bundle ARR surpassing $1 billion across more than 70,000 customers.

Ceo Mike Cannon-Brookes argued that enterprise AI has reached an inflection point, with platforms enabling shared context between people and AI agents poised to outperform. For the quarter, Atlassian anticipates revenue between $1.825 billion and $1.835 billion, slightly above the $1.82 billion analysts expected. Cloud revenue growth is projected at about 27%.

Full-year targets for 2027 are upwardly revised, with revenue growth of approximately 13.75%, three-quarters of a point higher than the August forecast. As customers shift Data Center purchases to fiscal 2026 post-retirement announcement, this year's revenue comparisons are more challenging. Total revenue growth is expected to accelerate again in fiscal 2028, Atlassian stated.

Investors reacted negatively to the revised outlook, selling the stock despite the company's expectation of slower subscription annual recurring revenue growth of about 18.5% by fiscal year-end, down from the 22.5% just reported.