The F1 (effectively a prospectus without a price) for Atlassian reveals a lot of figures, but is silent on the main one – how much the business might be worth. I am not in possession of any broker information, don’t work for the company, nor have I received any company briefings, but of this I am moderately certain: it should list at a lot more than US$3.3b.
That number really is an old valuation. It was struck via the price at which Accel Partners, one of the big Silicon Valley vc’s, bought a US$60m parcel of shares back in 2010. For those that don’t know, Accel is valley aristocracy, having backed Facebook, Dropbox, Braintree (now part of Paypal) and a heap more.
Atlassian has kicked on since then. The F1 says its free cashflow is US$65.5m, but that’s after it bought a building for US$29m. Operating cashflow, which is the real number, grew from US$75m to US$98m for the year ending 2015.
This is the number which institutional investors will be focused on (and I say this having been part of the teams that set the price ranges for both the Seek and Carsales floats, and many others besides). Similar companies such as Salesforce or Workday (though the similarity is that they are in software, and that’s about it) trade on cashflow multiples that start at 40x and go a lot higher. Salesforce has a market capitalisation of US$52b, with operating cashflow of US$1.17b (so it is trading 44x). Box is capped at US$1.5b, but lost US$85m at the operating cashflow line. At the other end of the spectrum, Microsoft is trading at 14x, but there are serious questions about its growth (problems Atlassian doesn’t have).
Why is Atlassian important? Imagine, if you will, that you are trying to build a piece of software which plays a song, and then asks you (the listener) if you want to buy it. It may sound simple, but before this can happen, globally, on every phone or computer, someone has to specify the task, then assign it, ensure the resources are there to execute, give it a time frame, include any additional parameters and of course tell everyone that it’s happening. Importantly, the whole process has to be visible, documented and auditable (in case something goes wrong and your phone erases your contact book instead). It also needs to be precise because computers don’t really react to shouts or violence.
Then, and this is the important part, it has to be globally scale-able across millions of customers – it’s that process that is the mainstay of the Atlassian business. It’s the reason it’s a big company – because it works, and most people who write software like and are used to it.
Of course, there are many other metrics – the company wants to grow its 5m monthly active users to 100m over thirteen years, we don’t have the full story of what exactly the Atlassian growth plan is etc. And if the growth story is flawed, the company will struggle, obviously. But on the numbers US$3.3b looks very low.
Disclaimer: This above does not constitute financial advice. Investors should make their own enquiries before making any financial decisions.
Loftus Peak featured by the ASX: Making money from Disruption08/23/2018
Alex Pollak on 2GB with Ross Greenwood – Apple the first US trillion dollar company08/10/2018
Apple through US$1 trillion, Google, Amazon, Microsoft hot on its heels: Runaway returns to scale?08/10/2018
Loftus Peak in the AFR: The death of Moore’s Law (20th July 2018)07/24/2018