Owning the Modern Software Developer Workflow

How Atlassian is positioned for the long term by optimizing software engineer workflows for teams, large and small.

Marc Andreessen, a pioneer of the modern web browser, wrote a famous article in the Wall Street Journal in 2011 entitled “Why Software Is Eating the World.”

In that article he laid out the case for why more of the world is moving to the creation, use of, and reliance on software to do many things they normally had to interact in person to do. The ongoing COVID-19 pandemic has only accelerated this trend, as people across the world proved that they can get meaningful work done only using programs such as Zoom, Google docs, Slack, and others.

In my opinion, companies that make the process of creating software easier and more collaborative will be incredibly valuable as the world consumes more and more of it. The purpose of this article is to outline the bull case for one in particular, Atlassian (NASDAQ: TEAM). I’ll discuss how software engineers use Atlassian’s products, how it makes development more fluid for teams, and how the product is sticky for the wide variety of clients that use it.

What Does Atlassian Actually Do?

In short, Atlassian creates software that helps teams to maintain a codebase, share knowledge, and organize goals. The Australia-based company even makes a bold proclamation of their mission right on its home page:

Honestly, “thousands of teams worldwide” seems like a bit of an undersell; I see no reason why it shouldn’t be millions of teams. According to the company’s website (as of March 2021), it currently supports 180,000+ teams worldwide. I’ll get into who those actual customers are in a minute, but it’s important to understand the products that Atlassian sells to enable “open work for all teams.”

Jira

In my view as a software developer, Jira is the most important product that Atlassian offers teams. A Jira “ticket” or “card” represents a unit of work for a software engineer. Need a bug squashed? Make a Jira. Need to make that code change to improve performance? Jira. Want to add a new feature? You guessed it, Jira ticket is the answer.

Jira has become the de facto product for software teams to define work, add contextual information, and easily create a feature branch to begin that work. It’s like “taking an Uber”, “using a Kleenex”, or “booking an Airbnb.” Jira tickets are universally understood by software engineers at firms large and small, and “let’s make a Jira for that” is a phrase used by software teams every day.

For software engineering managers, Jira makes tracking progress towards bigger picture goals super easy. A sprint is a defined period of time that is dedicated towards achieving a certain set of changes, and those changes are represented by Jira tickets on a Jira board for a sprint. Managers of teams can use a Jira board to view progress on tickets, view testing information, request more detail, and much more.

Atlassian makes money on Jira by charging per user per month. The product is free to teams with less than 10 users, allowing even the smallest teams to get started easily. The fee schedule looks like this:

Obviously, Atlassian stands to benefit by organizations growing their tech teams. According to this article, a firm like JP Morgan Chase employs around 50,000 technology workers. If we assume those employees are using Jira, that’s around $250,000 in revenue per month ($3 million per year) from one client if using a monthly plan. In practice, discounts are offered for teams with that kind of size on an annual plan, but it is easy to see teams of all sizes contribute to TEAM’s bottom line.

Bitbucket

Bitbucket is a product sold by Atlassian that allows software engineers to maintain a codebase via Git, the most popular version control system in the world. According to Atlassian’s website, Bitbucket gives teams one place to plan projects, collaborate on code, test, and deploy.

So what does this mean for productivity and customer loyalty? From my experience as a software engineer, Bitbucket can be described as both “best-in-class” and “sticky” when it comes to code management.

From a Jira ticket as described above, an engineer can create a new feature branch to work on said unit of work in just two clicks. With a pre-populated git command, an engineer can instantly starting working on the task at hand with a fresh development environment.

After finishing this piece of work, Bitbucket allows for instant verification that the code isn’t “breaking” anything by automatically running unit tests on said feature branch. This testing gives teams the confidence to progress new features through the proper environments quickly, easily, and safely. Upon merging new code into an environment, Bitbucket even allows for integration into a team’s build system to automatically build and deploy a new version of a service.

Pricing for Bitbucket looks similar to Jira, with different plans available based on features required by teams. Again, the larger the team, the more revenue coming in for Atlassian.

Teams can customize their plan based on what they’re looking to accomplish.

It’s also worth mentioning that Bitbucket is probably the “stickiest” of all Atlassian products. The seamless integration with Jira and fact that it houses all of a project’s code make it a tough sell to move off of. In theory, if a codebase needed to be moved to another Git repository provider it could, but the pull requests and other features Bitbucket provides make it unnecessary once in the Atlassian environment. Many teams enter through the “free” tier with no obligation, then once they add more users it has become too familiar and convenient to get rid of.

The bottom line on Bitbucket is that it provides software teams with feature-rich, best-in-class codebase management. Moreover, it integrates easily with other products for teams to make TEAM a one stop shop for everything related to shipping high-quality software.

Confluence

Confluence is an Atlassian software product that allows teams to share knowledge in an organized, collaborative manner. Think wiki or Google docs for teams, where business units can have their own dedicated space.

As teams grow and more projects get completed, it’s extremely important to document what has happened so new team members can get caught up to speed. For example, a new software developer could be linked to a Confluence page that explains, in detail, how to set up his or her development environment. This prevents an existing member from having to take time out of their day to explain that information. This type of knowledge sharing can be used as a central repository of a team’s collective experiences.

As opposed to Jira and Bitbucket discussed above, Confluence isn’t necessarily confined to software teams. Any type of business unit can use the wiki features to create pages and have them edited. From the website, a few reasons why teams might use Confluence:

These features all line up with Atlassian’s mission to provide teams across the world with open communication tools. By enabling real-time updates to business unit specific content, both software and non-software teams can collaborate from anywhere, on anything, with feature-rich tools.

Other Products

Jira, Bitbucket, and Confluence are certainly not the only products and services Atlassian offers. I chose to go into some detail with these because I have used them personally and can vouch for their effectiveness. Other extremely popular products include Trello, OpsGenie, Crucible, and more. Again, these products all help teams deliver on their goals and work together no matter where they’re physically located.

I’m particularly bullish on TEAM because of the type of customers Atlassian is landing, the effectiveness of these tools at doing their job, and the current competitive landscape for this industry. More on all of those below.

Who are Atlassian’s Customers?

Great, so now we know what Atlassian does. I wanted to use this section to discuss who the company’s customers are, who they can be, and why TEAM is positioned to add more in the future.

I’ll begin with an anecdote about what I’ve seen in the wild as a software engineer. I worked at a consulting firm that that does software work for large investment banks and broker dealers. Think the biggest of the big in the financial industry. One thing all of these institutions had in common is that they heavily utilized the three main Atlassian products discussed here: Jira, Bitbucket, and Atlassian.

As discussed above, these products charge based on number of users. These institutions tend to have a large amount of software employees as more and more financial activity is being automated and digitized. More employees/users means more revenue for TEAM.

It’s not just large financial institutions utilizing the benefits of Atlassian’s software, however. Having worked at a startup which was 3 people at the time, myself and others made the decision to go with Atlassian’s stack of Jira + Bitbucket for our task management and Git repo needs. This was a no-brainer for us as a cash strapped company, because everything was free up until 10 users. We were about to get a product off the ground without having to pay for software to manage our development infrastructure. If we had scaled beyond 10 users, the ease of use and value provided would have undoubtedly kept us around as a paying customer.

Friends that I’ve spoken to that work in the software development industry (not necessarily finance) have also indicated that Bitbucket is the predominant player for Git repository management, and Jira for task management. The firm clearly does a great job of communicating its value to teams, both large and small, that need to get serious dev work done. The more I begin to piece things together on the current competitive environment, the more attractive Atlassian looks.

Financials

No analysis is complete without a look at the financials of the company in question. The story behind Atlassian’s revenue and other financial metrics is very appealing, as the business is seen to be sustainable and constantly growing, even through a global pandemic.

Links to all of Atlassian’s recent reports can be found here if you’re interested in digging yourself. First I’ll look at Atlassian’s 2020 performance, then compare that to previous years to get a sense of the growth that is happening.

In the fiscal year 2020, Atlassian saw $1.6 billion in revenue, reported around 174,000 paying customers, and has $500 million in free cash flow on hand. Comparing that to the same numbers for fiscal year 2019, Atlassain had $1.2 billion in revenue, reported around 152,000 paying customers, and has $422 million in free cash flow on hand in that year. 2020 saw an increase in revenue of 33.3%, an increase in paying customers of 14.5%, and an increase in free cash flow of 18.5% from the previous year.

These numbers paint an excellent picture of strong growth. It’s even more impressive considering that many companies faced financial hardships in 2020 due to the pandemic, yet Atlassian was still able to add 14.5% more customers.

You can see a full operational breakdown over the past few years:

Lots of good information here, but investors especially love to revenue consistently growing.

As you can see, the financial numbers back up the growth of and interest in Atlassian’s core products. The company is built to weather any type of storm, global pandemic or otherwise. Even dating back to as early as 2016, TEAM has continued to predictably grow revenue.

Atlassian’s Q1 2021 earnings saw more of the same: revenue was $459.5 million for the quarter, growth of 26% year-over-year. TEAM has able to sustain these types of results by executing on a known strategy. Continuing to execute will be critical in this competitive industry, which we’ll explore in the next section.

Competitive Analysis

Given what Atlassian does and who its customer are, it’s important to consider what other alternatives exist in the marketplace. It’s certainly not an easy to task to build such wide-ranging, interconnected software, so that’s already a nice protective moat to begin with.

Github (Mircrosoft)

One potential competitor to consider right off the bat is GitHub. Recently purchased by Microsoft for $7.5 billion, GitHub is a service for hosting and collaborating on software projects. This puts the firm in a similar space as Atlassian, allowing developers to collaborate on codebases and advance business products.

While GitHub does allow for enterprise teams to work together on software, its market position in this category is lacking in terms of breadth of product. Atlassian provides products that tie everything together - from creating an issue on a Jira board, to starting a feature branch to do the work, and documenting the whole process in an integrated environment. GitHub allows for creation of an “issue” a la Bitbucket’s functionality, but doesn’t have dashboard functionality for issues in the same way Jira boards organize sprints.

In my opinion, the important piece when considering GitHub as competition to Atlassian is who is landing the big customers. While my experience is limited, I have never met a developer whose firm uses GitHub instead of Bitbucket for managing a codebase. Atlassian has many large banks as customers (as I’ve seen first hand), as well as many successful tech companies, such as these listed on its website:

Not a bad list of companies to call clients.

While the backing of Microsoft and a burgeoning enterprise business is nothing to scoff at, in my opinion TEAM has enough of a head start to be considered the market leader for this type of software. GitHub has a strong reputation when it comes to open source software and newbies learning to code for the first time - but the enterprise customer has entirely different set of needs. It’s clear that Atlassian is top of mind when it comes to servicing those needs, making it well-positioned to land more large clients in the future.

JetBrains Space

Another potential competitor to Atlassian is JetBrains, specifically with their newest product Space. JetBrains is a Czech Republic based software company best known for its IDEs, or integrated development environments. IDEs are the programs used by software developers to do their actual coding work, run tests, and ultimately push code through to production. This, of course, gives JetBrains an interesting position when it comes to potentially being a developer’s best friend for work and team management.

JetBrains Space is a new product from JetBrains that aims to be “the integrated team environment.” It promises to be a place where teams can create and track issues, manage Git repositories, configure CI/CD infrastructure, and collaborate on documents. The services offered by Space seem very similar to what Atlassian offers:

Looks familiar 🤔

It’s clear that JetBrains is attempting to capitalize on its rock-solid reputation with developers for creating powerful, functional IDEs. The thought process must be “if they like our code-editing tools, we can easily get them to use our other developer workflow products.” Space just went into beta in August 2020, so it is a very new product, but one that certainly aims to compete with Atlassian’s team based tools. Atlassian’s stock ticker is TEAM, after all.

A couple thoughts come to mind with this new product. The first is that, while developers are very familiar with JetBrains, people outside of that silo are not. Space offers to be “a digital home for everyone in your company,” but not everyone in the company thinks in terms of software. The initial screenshots from the website look like they’re mostly geared towards developers, which may alienate other people in the country and ultimately may prevent JetBrains from making the sale.

Of course, we also can’t forget this product is both very new and also outside of JetBrains’ main business line. With any new product, it will take time to earn the trust of the largest of the large customers. Many enterprises use JetBrains’ IDEs, but moving onto their Space platform would be a major disruption to current business. It would take a massive upgrade in terms of product to make the switch from something like Atlassian. The product offering seems at best on-par with what Atlassian offers from an “integrated team environment” perspective. In addition, it’s tough to maintain focus on multiple business lines that aren’t directly related. JetBrains would have to balance both its IDE business and the business of realtime team collaboration tools.

The JetBrains Space product is certainly something watch, especially as it comes out of beta and starts to compete more directly with Atlassian. Of course, as the incumbent, Atlassian has a large existing lead in this category that should help it continue to land large customers.

The Bottom Line

At the end of the day, I’m bullish on Atlassian because it is a market leader when it comes to helping teams get work done. The firm provides a complete suite of software products that enable creation and tracking of units of work, ease of management of complex codebases, and a space to document team-wide updates for all members to see. Software engineers are very familiar with these tools, and the largest companies in the world are consistently choosing Atlassian to be their all-in-one solution for codebase management.

While Atlassian does operate in a competitive industry, the completeness of vision and ability to execute on that vision set it apart from its peers. Both Microsoft and JetBrains are reaching outside of their core businesses to compete in this area. Atlassian, on the other hand, is so committed to helping teams get work done it planted the flag on its stock ticker: TEAM.

I believe we will continue to see Atlassian bolster its offerings to teams, both in quantity and quality of products. By focusing clearly on cloud-based tools for the enterprise work environment, TEAM can listen to its customers and adapt to an ever-changing world. I hope this report was helpful for your understanding of Atlassian as a company, and why the firm belongs on my Buy and Hold Forever list.