Atlassian Stock Plunges 30% in a Month: Should You Buy the Dip?

Atlassian TEAM shares have plunged 30.3% in the past month, underperforming the broader Zacks Computer and Technology sector, Zacks Internet - Software industry, S&P 500 index and the Technology Select Sector SPDR Fund’s XLK decline of 11.3%, 16.4%, 8.1% and 10.9%, respectively.

Atlassian shares have declined due to negative investor sentiments related to the rising costs associated with tariff hikes. Atlassian’s reliance on cloud service providers and a steep rise in tariff rates can increase the cost of operating data centers and networking equipment, affecting TEAM’s margin profile.

A large part of Atlassian’s software development team operates from foreign countries. Tariff hikes can potentially increase the cost of cross-border services and software-related imports, pressuring the bottom line. 

Atlassian One Month Price Return Performance

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Atlassian shares are currently trading at a premium, as suggested by its Value Score of F.

In terms of the Forward 12-month price/sales ratio, TEAM is trading at 9.76X, higher than Zacks Internet - Software industry’s 4.48X.

Atlassian’s Price/Sales Ratio (F12M)

Image Source: Zacks Investment Research

Does the dip make Atlassian a good buy despite a high valuation? Let us dig deeper to find out.

Strong Product Demand Drives TEAM’s Top-Line Growth

Strong traction in Atlassian’s collaboration and productivity tools due to the rising trend of remote and hybrid work is driving TEAM’s top line. Per a report by 6sense, Atlassian commands a market share of 18.26% in the team collaboration space.

To boost the adoption of its solutions, Atlassian has infused AI features across all its major products, including JIRA, Confluence, Bitbucket, and Trello, providing users with improved means for knowledge discovery and task automation. 

In the second quarter of fiscal 2025, Atlassian reported that over one million monthly active users engage with Atlassian’s AI features every day. TEAM is also experiencing a surge in customers adopting higher-value products infused with AI, leading to a 40% year-over-year increase in TEAM’s Premium and Enterprise editions sales.

TEAM Gains From Strong Trend in Cloud Migrations

Atlassian has long been focused on migrating its customers to the Cloud to charge them on a subscription basis. The subscription-based business model generates strong recurring revenues, providing top-line stability.

Subscription services are also highly profitable because adding more users keeps the fixed costs of providing infrastructure, software development, and support relatively low compared to on-premise models. In the second quarter of fiscal 2025, TEAM’s subscription-based cloud services aided its Cloud revenues to grow 30% year over year. 

To top it off, Atlassian is in the final stages of achieving FedRAMP Moderate Authorization, which will enable a larger share of U.S. government agencies and highly regulated enterprises to securely migrate to TEAM’s cloud offerings, driving its top-line growth.

TEAM Benefits From Strong Partnerships

Atlassian has a rich partner base comprising solutions and technology partners. While solutions partners provide implementation, customization and training support for Atlassian products, its technology partners like Amazon AMZN and Zoom Communications ZM enhance TEAM products with rich features.

Over the past few years, Amazon Web Services has provided Atlassian with the necessary infrastructure for its cloud migrations and operations. TEAM collaborated with Zoom to integrate Zoom's video communication features into Atlassian's Jira Ops and Jira Service Desk products.

Atlassian’s Fiscal 2025 Revenues & Earnings to Rise Y/Y

Atlassian projects its revenues to grow in the range of 18.5-19% year over year in fiscal 2025. The Zacks Consensus Estimate of Atlassian’s fiscal 2025 revenues is pegged at $5.17 billion, indicating year-over-year growth of 18.6%. 

The Zacks Consensus Estimate for Atlassian’s fiscal 2025 earnings is pegged at $3.44, indicating year-over-year growth of 17.4%. 

Atlassian beat the Zacks Consensus Estimates in each of the trailing four quarters, with an average surprise of 27.9%.

Atlassian Corporation PLC Price, Consensus and EPS Surprise

Atlassian Corporation PLC price-consensus-eps-surprise-chart | Atlassian Corporation PLC Quote

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Conclusion: Buy Atlassian Stock Now

Atlassian is gaining from the rising adoption of its collaboration and productivity tools amid the hybrid work trend and accelerated digital transformation. TEAM’s subscription-based business model is enabling it to gain from strong recurring revenues and higher margins.

The implementation of AI across its portfolio is prompting its customers to subscribe to the Premium and Enterprise editions of its solutions, driving both top and bottom lines. These factors are likely to prove strong growth drivers for TEAM in the upcoming quarters and, hence, justify a premium valuation. 

Atlassian carries a Zacks Rank #2 (Buy), implying that it is the right time to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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