Even in the midst of a historic bull market, a 22% stock price jump is remarkable.
Bear in mind, I’m not talking about for a quarter or a month. And not even for a week for that matter.
That’s how much the stock of a leading provider of online collaboration and team management tools jumped in a single session back on July 30.
Now then, some of you may be thinking, “Michael, you’re always telling us to invest for the long haul. Why are you talking about a single day’s jump?”
Fair question. Simple answer: that one-day spike underscored the massive trend of shifting from standard software sales to a cloud-based subscription model that builds in recurring sales and profits.
As a result, this aggressive, growth centric firm has quietly become a standout in a field that will soon be worth $13.5 billion.
In fact, it’s doing so well that, since the start of 2021, it’s managed to grow by over 40% overall while Zoom, the big workplace software legend of 2020, has lost value.
A New Workplace
As workplaces all over the world were closing down to avoid infection last year, businesses had to adapt.
For millions of people, that meant working from home on their own laptops or desktop computers. But working from home and empty office spaces is just the surface of this widespread change.
Companies that used to be office-based suddenly had to deal with almost all their workforce being remote. Without in-person check-ins, companies were basically forced to shift to online team management systems.
Covid may have been the catalyst for this large-scale shift. But innovation in how we schedule tasks and meetings, reviewing performance, and so on was always inevitable.
The amount of collaboration apps installed on workplace devices surged an impressive 176% by just May 2020, just after Covid hit. Today, that number is almost certainly higher.
Research firm Apps Run the World estimates the total value of that market to grow from $12.4 billion in 2019 to $13.5 billion in 2024.
Throughout this massive growth, Atlassian Corp. plc (TEAM), an Australian software developer was making a big shift to the cloud.
Working in the Cloud
The project management and digital collaboration is moving away from the old model of selling software for the clients to install on their own machines. Instead, it’s moving its software into the cloud, and selling online access to it as a subscription.
It’s what allows you to access everything on your work computer while sitting on your couch. The utility of this innovation is probably why 95% of Atlassian’s new customers choose the cloud-based products.
The subscription costs for these products are remarkably affordable, so it’s a no-brainer for small businesses. And since the software is hosted in the cloud, Atlassian takes care all the servers, datacenters, and IT operations- a miracle for the overwhelmed small business owner.
For larger businesses, cloud-based software solves most issues that remote workers might have in getting access to a corporation’s internally-hosted software. It also means Atlassian itself keeps its software up-to-date, reducing the risk of any breaches.
This is a great move from Atlassian’s point of view, too. See, Atlassian customers who pick cloud products expand the number of paid user licenses 20% faster than non-cloud customers do.
That’s led to Atlassian’s cloud business growing by 121% at the end of the last quarter. That’s higher than the industry’s average of 117%.
And cloud-based services are becoming an even better business prospect as new 5G wireless infrastructure boosts the ability of these services to reach their users and customers.
It should be noted that all of this massive growth has been entirely organic. In the time since it opened for business, Atlassian has never had a sales force.
The only other product to accomplish such growth and brand-recognition without a marketing effort has been Spanx and their creator Sara Blakely is routinely touted on every major Forbes’ list. When your company’s products are just that essential and efficient, they sell themselves.
Here’s How It Works
Atlassian’s clients put together teams to come up with new product or service ideas. From there, they hand it off to another team that develops the concept and assesses the market. After that, another team builds out prototypes, before handing it off to the production team, and then on to the sales team.
Atlassian’s tools provide easy but powerful ways of coordinating and managing that process. They keep track of responsibilities, deadlines and everything in between.
And now that the firm has moved them to the cloud, it’s even easier for clients to buy more licenses.
After all, they don’t need to buy more servers. Atlassian’s cloud handles everything.
Growth + Upside
Over the past year, Atlassian’s stock has basically doubled. Compared to the S&P 500’s strong 31% rise, Atlassian has scorched the market by an astounding 222.6%.
But there’s still plenty of upside ahead. The firm is growing earnings by 38% a year, which means they will double in less than two years.
In other words, this stock has no flash in the pan. It’s a great long-term tech holding that can create wealth for years to come.
Cheers and good investing,
Michael A. Robinson