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The idea that growth is better than profits was in-built into Atlassian's proposition to shareholders, ultimately. The slow and steady mentality is fine, but w

The idea that growth is better than profits was in-built into Atlassian's proposition to shareholders, ultimately. The slow and steady mentality is fine, but we see over and over that it isn't what the market wants. A private company or a high risk growth company, those are the two options for a software company. Either that or they'll be taken over. They're revenue now is just a $2bn, so that "grow grow" mindset from 10 years ago did not work out. In theory, a steady CEO could try to steady at that size with a nice margin. But, actually declaring and pursuing that would mean halving the companies market cap to a "normal" P/E of 20-30X. At that price (say $20bn) one of the big software companies would just buy them... for their own growth targets. Moderation has no place in the public markets as a software company. It's remarkable how unstable a stable condition is.

theturtletalks 4y ago
Fundamentally, why would someone buy a stock of a company that doesn’t eventually make a profit or offer some sort of dividend? Seems like Atlassian traded profit for staying power, but can they leverage that staying power to bring value to their investors?
- bombcar 4y ago
  People buy growth stocks because they can sell them for more tomorrow, it's often a bit of greater-fool theory in play. For the successful companies that do grow into a dividend company, they often have valuations that far outstrip their eventual settling location at some point in the trajectory.
- dangerboysteve 4y ago
  Amazon comes to mind.
- JamesBarney 4y ago
  The idea is they'll eventually get purchased, or have a profit and dividends. But if you're growing so fast it makes sense to focus on that over profitablity. Most investors would rather have a 1.40, next year than a dollar today.
  - WorldMaker 4y ago
    Directly related to that, if the expert they hired to the board that led them in this direction was from Great Plains it useful to note that Great Plains exited by being bought by Microsoft.
ASalazarMX 4y ago
What's wrong with having a small or medium company? Why must a company sell its soul for the chance of becoming a money-printing behemoth in the future? I understand that being small leaves you vulnerable to the predatory tactics of big players, but I see that as a consequence of lax regulation. There are too many mono/duopolies already, and the bigger they get, the harder it will be to split them apart.
- Ferrotin 4y ago
  What is wrong with having a small mediocre business: 1. Companies provide useful products to customers. 2. Growth means that you built products that more customers paid more money for, because it was useful. 3. Thus, growth means your company contributed more to human prosperity.
- lmm 4y ago
  > What's wrong with having a small or medium company? Why must a company sell its soul for the chance of becoming a money-printing behemoth in the future? If you don't go the unsustainable blitzscaling route you'll be outcompeted by those who do, just as Atlassian did to plenty of smaller, more sustainable competitors. > I understand that being small leaves you vulnerable to the predatory tactics of big players, but I see that as a consequence of lax regulation. That's nice, but that doesn't make it go away. Do you have a plan to make the regulation non-lax?
  - majani 4y ago
    Not necessarily. If your company has strong fundamentals, for example Microsoft, then blitzscaling is not needed because not even a free alternative can compete with you. And if you don't have strong fundamentals, you really shouldn't be taking investor money anyway. Blitzscaling is just an exciting term to align founder and investor incentives (which tend to be at odds with one another)
- faeriechangling 4y ago
  Take a look at o365. Planner is an identical product to Trello. They're buying GitHub which competes with Bitbucket. Sharepoint & MSoffice are alternatives to Confluence. There might not be an equivalent to Jira but the Microsoft machine is increasingly muscling into their turf.
mistrial9 4y ago
> revenue now is just a $2bn "only" $2bn ? this is bizarre to see discussed without question
- jshen 4y ago
  It makes perfect sense when we’re talking about a public company. It would be a completely different conversation if they were private.
- forgingahead 4y ago
  Probably because the valuation is currently 10x revenue, and was previously more like 70x. "Only" is probably because the parent still feels like Atlassian is highly over-valued.
cptskippy 4y ago
> but we see over and over that it isn't what the market wants. What the market wants is short term growth and I firmly believe that is what is destroying our economy and the market. Instead of building pillars and companies that outlive the founders, we have short term cash grabs. We have VC firms buying up our existing pillars, gutting them of any valuable assets, saddling them with debt, and then selling off the carcass. We have firms buying up real estate and creating or exacerbating scarcity to drive up demand and prices. We have shifts towards subscriptions and quarterly profits. It's not healthy and it's destroying us.
- dalbasal 4y ago
  Perhaps, but I think on this instance... this short-termist mindset has a basis. What kind of a 100 year future does Atlassian have? Jira certainly isn't a 100 year product. Software is so fast... IDK. The pox is not just a product of greed and malice and nothing.
  - Supermancho 4y ago
    > What kind of a 100 year future does Atlassian have? We're talking about a company that produces products that are widely used. JIRA is not the issue, but the company that produced it. 100 years is stretching it, but I would believe that Atlassian outlasts yahoo.
    - formerkrogemp 4y ago
      Is Atlassian just another yahoo though?
- zeruch 4y ago
  "What the market wants is short term growth and I firmly believe that is what is destroying our economy and the market." Agreed, and its now a pox on the overall system.
mbesto 4y ago
> They're revenue now is just a $2bn And has been growing 30% YoY for the last 3~4 years alone. This is unheard of in any other industry/market. Their FCF is also impressive.
- time_to_smile 4y ago
  > And has been growing 30% YoY for the last 3~4 years alone. Growing revenue while still not making a profit is not impressive. If you give me $100 today I can go out a buy $100 a pair of new shoes, and sell it for $70. Give me $200 and I'll go out and by two pairs of shoes and sell them for both $84 (total)! Keep giving me money and you'll continue to see this growth I promise! > This is unheard of in any other industry/market Given my example above, that should be a warning, not a sign of success. I find it mind-boggling that people can really not even grasp that growing revenue with out demonstrating you can transform that revenue into profit doesn't mean all the much. Grow profits every year by 30% and I'll be impressed.
  - Ferrotin 4y ago
    > Growing revenue while still not making a profit is not impressive. It is when you’re a software company and the marginal cost of the goods is zero.
    - retcon 4y ago
      >It is when you’re a software company and the marginal cost of the goods is zero. $600mm annual sales and marketing isn't cost of goods but the method of accounting that I subscribe to includes such costs as a fundamental cost of production delivery.
      - mbesto 4y ago
        It's not, you can "turn off" S&M and people will continue to pay you. Subscription revenue isn't the same as revenue in other businesses.
    - 4y ago
ibeckermayer 4y ago
Hmm, good analysis. This phenomenon might to some degree be a function of the board’s veto power over the CEO. A primary reason you typically go public is to grow, so by default at IPO you’re a “growth stock”. But from that point on, its difficult to ever make a transition to a steady, sustainable “dividend stock”, especially as a tech company. If you try to, the stock will tank, all the “growth” investors will get mad and you (the CEO) will probably get fired by the board, and they’ll bring in a new “growth” CEO.

theturtletalks 4y ago

Fundamentally, why would someone buy a stock of a company that doesn’t eventually make a profit or offer some sort of dividend? Seems like Atlassian traded profit for staying power, but can they leverage that staying power to bring value to their investors?

bombcar 4y ago
People buy growth stocks because they can sell them for more tomorrow, it's often a bit of greater-fool theory in play. For the successful companies that do grow into a dividend company, they often have valuations that far outstrip their eventual settling location at some point in the trajectory.
dangerboysteve 4y ago
Amazon comes to mind.
JamesBarney 4y ago
The idea is they'll eventually get purchased, or have a profit and dividends. But if you're growing so fast it makes sense to focus on that over profitablity. Most investors would rather have a 1.40, next year than a dollar today.
- WorldMaker 4y ago
  Directly related to that, if the expert they hired to the board that led them in this direction was from Great Plains it useful to note that Great Plains exited by being bought by Microsoft.

ASalazarMX 4y ago

What's wrong with having a small or medium company? Why must a company sell its soul for the chance of becoming a money-printing behemoth in the future? I understand that being small leaves you vulnerable to the predatory tactics of big players, but I see that as a consequence of lax regulation. There are too many mono/duopolies already, and the bigger they get, the harder it will be to split them apart.

Ferrotin 4y ago
What is wrong with having a small mediocre business: 1. Companies provide useful products to customers. 2. Growth means that you built products that more customers paid more money for, because it was useful. 3. Thus, growth means your company contributed more to human prosperity.
lmm 4y ago
> What's wrong with having a small or medium company? Why must a company sell its soul for the chance of becoming a money-printing behemoth in the future? If you don't go the unsustainable blitzscaling route you'll be outcompeted by those who do, just as Atlassian did to plenty of smaller, more sustainable competitors. > I understand that being small leaves you vulnerable to the predatory tactics of big players, but I see that as a consequence of lax regulation. That's nice, but that doesn't make it go away. Do you have a plan to make the regulation non-lax?
- majani 4y ago
  Not necessarily. If your company has strong fundamentals, for example Microsoft, then blitzscaling is not needed because not even a free alternative can compete with you. And if you don't have strong fundamentals, you really shouldn't be taking investor money anyway. Blitzscaling is just an exciting term to align founder and investor incentives (which tend to be at odds with one another)
faeriechangling 4y ago
Take a look at o365. Planner is an identical product to Trello. They're buying GitHub which competes with Bitbucket. Sharepoint & MSoffice are alternatives to Confluence. There might not be an equivalent to Jira but the Microsoft machine is increasingly muscling into their turf.

mistrial9 4y ago

> revenue now is just a $2bn "only" $2bn ? this is bizarre to see discussed without question

jshen 4y ago
It makes perfect sense when we’re talking about a public company. It would be a completely different conversation if they were private.
forgingahead 4y ago
Probably because the valuation is currently 10x revenue, and was previously more like 70x. "Only" is probably because the parent still feels like Atlassian is highly over-valued.

cptskippy 4y ago

> but we see over and over that it isn't what the market wants. What the market wants is short term growth and I firmly believe that is what is destroying our economy and the market. Instead of building pillars and companies that outlive the founders, we have short term cash grabs. We have VC firms buying up our existing pillars, gutting them of any valuable assets, saddling them with debt, and then selling off the carcass. We have firms buying up real estate and creating or exacerbating scarcity to drive up demand and prices. We have shifts towards subscriptions and quarterly profits. It's not healthy and it's destroying us.

dalbasal 4y ago
Perhaps, but I think on this instance... this short-termist mindset has a basis. What kind of a 100 year future does Atlassian have? Jira certainly isn't a 100 year product. Software is so fast... IDK. The pox is not just a product of greed and malice and nothing.
- Supermancho 4y ago
  > What kind of a 100 year future does Atlassian have? We're talking about a company that produces products that are widely used. JIRA is not the issue, but the company that produced it. 100 years is stretching it, but I would believe that Atlassian outlasts yahoo.
  - formerkrogemp 4y ago
    Is Atlassian just another yahoo though?
zeruch 4y ago
"What the market wants is short term growth and I firmly believe that is what is destroying our economy and the market." Agreed, and its now a pox on the overall system.

mbesto 4y ago

> They're revenue now is just a $2bn And has been growing 30% YoY for the last 3~4 years alone. This is unheard of in any other industry/market. Their FCF is also impressive.

time_to_smile 4y ago
> And has been growing 30% YoY for the last 3~4 years alone. Growing revenue while still not making a profit is not impressive. If you give me $100 today I can go out a buy $100 a pair of new shoes, and sell it for $70. Give me $200 and I'll go out and by two pairs of shoes and sell them for both $84 (total)! Keep giving me money and you'll continue to see this growth I promise! > This is unheard of in any other industry/market Given my example above, that should be a warning, not a sign of success. I find it mind-boggling that people can really not even grasp that growing revenue with out demonstrating you can transform that revenue into profit doesn't mean all the much. Grow profits every year by 30% and I'll be impressed.
- Ferrotin 4y ago
  > Growing revenue while still not making a profit is not impressive. It is when you’re a software company and the marginal cost of the goods is zero.
  - retcon 4y ago
    >It is when you’re a software company and the marginal cost of the goods is zero. $600mm annual sales and marketing isn't cost of goods but the method of accounting that I subscribe to includes such costs as a fundamental cost of production delivery.
    - mbesto 4y ago
      It's not, you can "turn off" S&M and people will continue to pay you. Subscription revenue isn't the same as revenue in other businesses.
  - 4y ago

ibeckermayer 4y ago

Hmm, good analysis. This phenomenon might to some degree be a function of the board’s veto power over the CEO. A primary reason you typically go public is to grow, so by default at IPO you’re a “growth stock”. But from that point on, its difficult to ever make a transition to a steady, sustainable “dividend stock”, especially as a tech company. If you try to, the stock will tank, all the “growth” investors will get mad and you (the CEO) will probably get fired by the board, and they’ll bring in a new “growth” CEO.