Barclays thinks investors should pick up shares of Atlassian as its customer activity picks up. Analyst Ryan MacWilliams upgraded the Australian-American software company, which develops and maintains software and provisions software hosting services, to overweight from equal weight. He raised his price target by $40 to $275, which implies 34.3% upside from Wednesday’s close. The stock is up 8.3% this quarter but has lost roughly 11.2% this year on concerns of moderating organic growth in Atlassian’s cloud business, which comprises more than half its total revenue. In early February, the company beat second-quarter earnings and revenue estimates and gave positive fiscal 2024 guidance concerning its cloud and data center revenue growth. According to MacWilliams, customers’ increasing multiyear data center and cloud bookings as well as higher software developer job posts support the company’s margins and growth in fiscal 2025 and beyond. He indicated expectations for roughly 80% to 90% of the company’s data center customers to migrate to cloud within the next three years. “We think TEAM could experience [free cash flow] margin expansion near-term as enterprise customers migrate from Server to DC/Cloud and as TEAM begins to lap migration investments in 2H24/FY25,” MacWilliams wrote in a Thursday note. “We also believe a healthier growth profile with more enterprise customers on its Cloud solutions warrants a higher multiple given improved revenue durability.” The analyst’s upside case assumes roughly 28% revenue growth in 2024, which he thinks could happen if Atlassian continues to invest in its in-house revenue generators or pursues external portfolio additions. He said the company’s shares are trading at a discount relative to fast-growth peers with similar margin profiles. “We view TEAM as well-positioned within the DevOps space due to its strong PLG growth story and attractive unit economics,” he said. “Further, we think that TEAM’s business model and rev. growth could look cleaner post-migration.” Atlassian’s share price rose 2.3% on Thursday.
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