Saturday, May 21, 2022

Welcome to Atlassian world – a parallel universe experience

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Kookaburra, ARR.News
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A world where down is up and debt is just a state of mind.

Oh my captain, whither we goest?
We now have line of sight to $10 billion in annual revenue based on our current markets and products’

Which is probably just as well given that ‘we’ have reduced our R&D spending to its lowest level since the June quarter of 2018 to just 15% of gross revenues (down from a high of 50% of gross revenues in the June quarter of 2017), and seemingly being the only thing keeping TEAM marginally moving forward … up until now.

But that is all academic in Atlassian world where things material seem to be so far removed from our lofty aims and, well, tawdry, given our higher calling and where ‘We are incredibly motivated by the role we play in transforming how teams collaborate, power digital transformation, and drive cultural change’, to quote from co-pilot Scott Farquhar.

One thing about which the co-pilots do not seem to be motivated at all is return to shareholders, either by way of dividends (none) or share price (which has dropped from $US458.13 on October 29, 2021 to $US224.84 at the close of market yesterday 29 April 2022 – a fall of 50% in just six months). Four straight quarterly losses have not helped in that regard, the latest representing a $US190 million negative turnaround over the same quarter last year – which had been one of their rare profitable quarters. Whilst gross revenues grew year-on-year by 30%, cost of sales grew by 35%, operating expenses grew by 47%, and customer growth of 8054 in the quarter was a drop of almost 43% in adding new customers when compared with adding 13085 new customers in the same quarter of last year – what could possibly go wrong? Wasn’t the pace of adding new customers with the prospects of profit somewhere far down the track the justification for the whole loss-making operation?

Rather than dealing with the imponderables and vagaries of high-tech, better to invest in property don’t you think? That would appear to be the view of the co-pilots, judging by their extensive (and expensive) property acquisitions in recent years. In February of this year, Michael Cannon-Brookes acquired a six-bedroom sandstone home at Coasters’ Retreat on Pittwater for $4.6 million, which must have appeared to be a mere bagatelle when compared with his purchase five months earlier of a $13 million country estate in the Southern Highlands. Conveniently, the new holiday pad is just across the water from MC-B’s earlier purchase in 2014 of his Palm Beach accommodation for $8.7 million. Pittwater appears to be a favourite destination for MC-B’s property investments with an estimated $50 million in acquisitions. The ‘water’ theme reached its zenith in 2019 with MC-B’s acquisition of the Fairfax family’s Fairwater estate on Sydney Harbour for $100 million. For MC-B this was really just catching-up with SF’s purchase in 2017 of another Fairfax family pile, Elaine, for approximately $75 million.

Meanwhile, back in Atlassian world, capital is moving in the opposite direction, which appears to be of little concern to the co-pilots. After handing over about $3.3 billion to the anonymous holders of some Exchangeable Senior Notes (not a bad return for an initial $US1 billion investment made just three years earlier and luckily extracted just when TEAM’s share price was at what one must now think was its zenith), the co-pilots now command a company with an accumulated deficit of $US2.3 billion and almost $1 billion in borrowings. Let me see, $US2.3 billion accumulated deficit plus $US1 billion in borrowings equals $3.3 billion – where have I seen that number before? Who were the holders of the Exchangeable Senior Notes?

Oh well, it is just debt, who cares? Apparently not those at the helm of TEAM.

See further: Atlassian Investor Relations, Mike Cannon-Brookes expands reach across Pittwater (SMH, 2 February 2022).
Related story: Atlassian co-founder and Tennant Creek solar farm investor, Cannon-Brookes’s bid for AGL

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