EPS of $-0.26 decreased by 629.5% from previous year
Gross margin of 83.8%
Net income of 225.36M
"“By making Rovo included in all premium enterprise subscriptions of Jira, Confluence and Jira Service Management, with the standard edition soon to follow, we're democratizing the power of AI and accelerating human AI collaboration.”" - Mike Cannon-Brookes
Atlassian Corporation (TEAM) Q3 FY2025 Results Analysis: Cloud-led Growth, AI Acceleration, and Durable Cash Generation in a Large-Scale Enterprise Software Platform
Executive Summary
- Atlassian reported Q3 FY2025 total revenue of $1.3567 billion, marking double-digit YoY growth with cloud revenue up 25% YoY and a robust free cash flow margin of 47% for the quarter. Management reiterated a long-term growth framework anchored in enterprise expansion, rapid AI integration (Rovo), and the System of Work, positioning Atlassian to scale toward its $10B revenue ambition and beyond.
- The quarter showcased a strong cash generation profile (net cash from operating activities of $652.7M and free cash flow of $638.3M) alongside a solid balance sheet (cash and cash equivalents of $2.661B; net cash position implying meaningful liquidity headroom). However, GAAP operating income was slightly negative at this quarter level, underscoring ongoing investments in cloud scale, AI, and go-to-market enhancements as Atlassian migrates customers toward cloud-first solutions.
- Management signaled confidence in achieving >20% CAGR in revenue through FY2027, driven by cloud/data center optimization, AI-enabled products, and the Teamwork Collection, while acknowledging near-term execution risk and longer deal-cycle durations in enterprise sales. The company highlighted FedRAMP Moderate authorization, Government Cloud, and Isolated Cloud as key milestones enabling broader enterprise penetration, especially in regulated sectors.
- Competitive positioning remains favorable versus peers due to higher gross margins, strong FCF, and a compelling AI/value proposition, though Atlassian faces typical sectoral headwinds from macro uncertainty and migration timing. Investors should monitor AI adoption velocity, cloud migration uptake, and the cadence of large, complex enterprise deals as primary drivers of the next leg of growth.
Net Income: $225.36M; Net Margin: 16.6% (GAAP); EPS (GAAP): -$0.26.
Cloud Revenue Growth: 25% YoY.
Financial Highlights
- Revenue: $1.3567B (+14.1% YoY; +5.5% QoQ).
- Gross Profit: $1.1370B; Gross Margin: 83.8%.
- Operating Income: -$11.46M; Operating Margin: -0.92% (GAAP).
- Net Income: $225.36M; Net Margin: 16.6% (GAAP); EPS (GAAP): -$0.26.
- Cloud Revenue Growth: 25% YoY.
- Free Cash Flow Margin: 47% in the quarter; Free Cash Flow: $638.3M.
- Operating Cash Flow: $652.7M; Net Cash Provided by Operating Activities: $652.7M.
- Cash and Cash Equivalents: $2.661B; Net Debt: negative $1.430B (net cash position).
- Shares used in diluted EPS: 262.671M.
- Capex: $14.366M; FCF: $638.315M.
- Customer/ ARR signals: 1.5M MAU for AI features; 300k+ customers; Enterprise mix >40% of revenue (up from 15% in 2020).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.36B
14.09%
5.46%
Gross Profit
1.14B
17.00%
6.93%
Operating Income
-12.46M
-168.79%
78.33%
Net Income
225.36M
1 667.24%
689.82%
EPS
-0.26
-629.53%
-73.33%
Key Financial Ratios
currentRatio
1.26
grossProfitMargin
83.8%
operatingProfitMargin
-0.92%
netProfitMargin
-5.22%
returnOnAssets
-1.2%
returnOnEquity
-5.17%
debtEquityRatio
0.9
operatingCashFlowPerShare
$2.43
freeCashFlowPerShare
$2.38
priceToBookRatio
40.72
priceEarningsRatio
-196.81
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and AI acceleration: Management emphasized embedding Rovo into core products to maximize usage and wall-to-wall adoption, signaling a long-term shift toward human-AI collaboration within the Atlassian System of Work. Quote: “By making Rovo included in all premium enterprise subscriptions of Jira, Confluence and Jira Service Management, with the standard edition soon to follow, we're democratizing the power of AI and accelerating human AI collaboration.” (Mike Cannon-Brookes)
- Growth framework and guidance: Executives reiterated confidence in achieving greater than 20% revenue CAGR through FY27, aided by enterprise opportunities and Rovo-driven productivity gains. Quote: “There’s nothing in the macro that changes our thinking on our commitments that we made at the Investor Day... drive revenue growth in excess of a 20% CAGR through FY '27. Rovo net helps that.” (Joe Binz)
- Cloud migration and product strategy: The team highlighted FedRAMP Moderate authorization, Atlassian Government Cloud, and Isolated Cloud as steps to broaden enterprise reach, especially among regulated sectors; cloud parity with DC continues to improve, with multiple large wins in cloud during the quarter. Quote: “Cloud is a fundamentally better experience for Atlassian customers than data center is,” and “we had major wins during the last quarter with the FedRAMP authorization and the announcement of Atlassian Government Cloud.” (Mike Cannon-Brookes; Joe Binz)
“By making Rovo included in all premium enterprise subscriptions of Jira, Confluence and Jira Service Management, with the standard edition soon to follow, we're democratizing the power of AI and accelerating human AI collaboration.”
— Mike Cannon-Brookes
“There’s nothing in the macro that changes our thinking on our commitments that we made at the Investor Day... drive revenue growth in excess of a 20% CAGR through FY '27. Rovo net helps that.”
— Joe Binz
Forward Guidance
- Outlook: Atlassian maintains a target to grow revenue at >20% CAGR through FY2027, supported by cloud/data center expansion, enterprise AI, and the Teamwork Collection. The near-term quarterly variability is anticipated due to larger, more complex enterprise deals and cadence of cloud migrations.
- Drivers to watch: (1) AI adoption velocity and monetization of Rovo (premium editions, consumption-based pricing, credits); (2) Cloud migrations contributing mid-to-high single-digit cloud revenue lift in FY26/27 per Investor Day guidance; (3) Teamwork Collection cross-sell leveraging a unified edition and global Jira user base (~10M+ potential attach opportunities).
- Risks to monitor: macroeconomic uncertainty affecting enterprise budgets and procurement cycles; deal-cycle elongation for larger enterprise contracts; data center to cloud transition timing; AI infra costs and COGS as Rovo scales; competitive dynamics in cloud and collaboration software ecosystems.
- Bottom line: Given the current trajectory (25% cloud growth YoY, strong FCF, and strategic AI/capability investments), Atlassian is well-positioned to reach its long-term revenue ambition, but investors should monitor the pace of large enterprise migrations and AI monetization progress to gauge how quickly the revenue mix shifts toward cloud/AI-enabled products.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
TEAM Focus
83.81%
-0.92%
-5.17%
-196.81%
WDAY
75.40%
7.66%
2.24%
80.40%
CRM
77.70%
20.00%
2.61%
45.94%
INTU
85.30%
48.00%
14.00%
15.58%
SNOW
65.90%
-38.80%
-11.10%
-29.37%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
- The combination of strong cloud growth, robust FCF, and the strategic AI roadmap suggests Atlassian is well-positioned to deliver continued top-line expansion and margin optimization over the medium term. The focus on AI-enabled workflows (Rovo), government cloud initiatives, and Teamwork Collection should support sustainable revenue growth as large enterprise deals close more promptly and AI monetization matures. - Key catalysts include accelerating Rovo adoption in premium/enterprise tiers, enhanced cross-sell via Teamwork Collection, and broader government/isolated cloud deployments. - Risks to monitor include macro volatility impacting enterprise spending, potential delays in large deal closures, and the evolution of AI-related COGS as AI infrastructure scales. Overall, the current trajectory supports a constructive long-term investment thesis, supported by a strong balance sheet and free cash flow discipline.
Key Investment Factors
Growth Potential
- AI-enabled expansion via Rovo across Jira, Confluence, and Jira Service Management; wall-to-wall adoption in large enterprises; Teamwork Collection creates attach opportunities beyond Jira alone (targeting >10M Jira users). - Cloud migration lifecycle improvements and premium/enterprise upsell drive mid-to-high single-digit cloud revenue contribution in the next 2-3 years.
Profitability Risk
- Macro volatility affecting enterprise IT budgets and procurement; longer deal cycles for large, integrated cloud/data-center deals; competition from other major platform providers; potential cost pressures from AI infrastructure (COGS) and the pace of AI-enabled monetization; regulatory/compliance constraints in government segments (FedRAMP/Isolated Cloud).
Financial Position
- Strong liquidity with net cash position (net debt negative $1.430B) and robust operating cash flow ($652.7M). - High gross margins (83.8%) and durable free cash flow generation (FCF margin 47%), providing capacity to fund AI investments and acquisitions of scale while pursuing growth.
SWOT Analysis
Strengths
Very high gross margins (83.8%) and strong operating cash flow generation; net cash position supports continued investment in AI and cloud scale.
AI-first product strategy with Rovo embedded across core products; large and expanding enterprise footprint (enterprise >40% of sales in 2025).
FedRAMP Moderate authorization, Atlassian Government Cloud, and Isolated Cloud expand addressable market in regulated sectors.
Solid free cash flow generation (FCF margin ~47%), enabling disciplined capital allocation including R&D and selective buybacks.
Weaknesses
GAAP operating income negative in Q3 due to ongoing scale investments, potentially pressuring near-term margin targets.
Conversion of revenue into earnings to be reconciled with AI-related COGS and broader cloud investments; data center contributions evolving with cloud migration.
Reported earnings metrics show some inconsistencies in margin reporting across sources (net income margin vs. net income ratio in different tables) requiring careful interpretation.
Opportunities
AI-driven productivity gains via Rovo escalating user adoption and premium/enterprise monetization.
Isolated Cloud and Government Cloud deployments open new, high-compliance customer segments.
Teamwork Collection bundling enables broader attach opportunities across Jira, Confluence, Loom, etc., driving expansion in seats and products.
Macro-agnostic resilience with diversified customer base (300k+ customers; 1.5M MAU for AI features).
Threats
Macro headwinds and potential budget tightening in enterprise IT; prolonged procurement cycles.
Competitive dynamics in collaboration software and cloud ecosystems.
Regulatory changes affecting cloud data residency and security requirements.
Migration risks between DC and Cloud could affect short-term growth velocity.