Why Atlassian Stock Just Exploded
Key Points
Atlassian beat on sales and earnings last night.
GAAP profits remain negative, but free cash flow is robust.
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Atlassian (NASDAQ: TEAM) stock exploded 22.6% higher through 10:15 a.m. ET Friday after crushing on its fiscal Q3 2026 earnings report last night.
Heading into the quarter, analysts had forecast the IT specialist to earn $0.98 per share, non-GAAP, on sales of $1.6 billion. In fact, Atlassian earned $1.75 per share on sales of $1.8 billion.
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Atlassian Q2 earnings
Not all of Atlassian's news was good. Revenue surged 32% year over year at Atlassian, with cloud computing revenue rising 29%. In contrast to the non-GAAP figures noted above, however, Atlassian says its earnings calculated under generally accepted accounting principles (GAAP) remained negative in the quarter with a loss of $0.38 per share -- 41% worse than last year's Q3 loss of $0.27 per share.
Atlassian blamed restructuring charges and taxes for the decline.
Free cash flow also declined significantly, falling from $638.3 million a year ago to $561.3 million in Q3 2026, a 12% drop.
What's next for Atlassian stock?
With Q3 now in the bag and only Q4 remaining to wrap up the year, Atlassian seems pretty confident in hitting its guidance numbers this year. 2026 should conclude with 24% revenue growth to $6.5 billion. (Wall Street is expecting only $6.4 billion.)
The company will probably not turn profitable before the end of this year; operating profit margin is expected to be negative 2%. But although Atlassian didn't say as much, free cash flow should remain very robust. (It only remains to be seen whether FCF will grow or keep shrinking compared to last year.)
Assuming Atlassian can at least stabilize its FCF, though, I continue to believe that at a price-to-free cash flow ratio of roughly 15x based on trailing-12-month FCF, Atlassian stock looks quite cheap.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian. The Motley Fool has a disclosure policy.
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