Atlassian Jumped More Than 30% After Guiding Next Year's Growth Down to 18%. The Market Bought the Margins.

Shares of Atlassian (NASDAQ: TEAM) soared more than 30% Friday morning, as of this writing, after the collaboration-software company reported fiscal fourth-quarter results Thursday afternoon. The odd part is what the report actually said. Management expects subscription annual recurring revenue (ARR) to grow about 18% in fiscal 2027, a step down from the 23% rate the company just delivered.

A slower forecast usually punishes a software stock. So what did investors see that outweighed one?

I'd point to the profit line. Atlassian has spent years growing quickly while losing money under generally accepted accounting principles (GAAP). In the fiscal fourth quarter, the growth finally showed up with profits attached.

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A 28% growth quarter that made money

Atlassian's revenue for the quarter (the period ended June 30) rose 28% year over year to $1.77 billion, up from $1.38 billion. Cloud revenue, the company's most important line, grew 31% to $1.2 billion -- an acceleration. And customers are committing further out: remaining performance obligations, the contracted revenue Atlassian hasn't yet recognized, jumped 44% year over year to $4.8 billion.

The bigger change came below the revenue line. Operating income was $211 million, a 12% operating margin, compared with an operating loss of $28 million in the year-ago quarter. Net income was $139 million, or $0.55 per diluted share, another swing from a loss. On a non-GAAP (adjusted) basis, the operating margin expanded to 36% from 24%, and earnings per share rose 91% year over year to $1.87. Free cash flow climbed 32% to $475 million.

The full-year figures show the same direction. Atlassian's operating margin went from negative 3% in fiscal 2025 to 0.2% in fiscal 2026, and management is targeting about 4.5% in fiscal 2027. That's a steady climb from years of losses toward consistent GAAP profitability.

"We're complementing that top-line strength with real operational discipline. We achieved GAAP profitability, with an operating margin of 12% in Q4, reflecting our commitment to driving durable, long-term growth," chief financial officer James Chuong said in the earnings release.

A closer look at the guidance

Alongside the subscription ARR guide, management expects total revenue to grow only about 13% in fiscal 2027, roughly half of fiscal 2026's 26% rate.

That looks worse than the ARR number. But timing explains a lot of it.

Atlassian announced in September 2025 that it will end most of its Data Center product line in March 2029. The announcement pulled customer purchases forward into fiscal 2026, inflating term-license revenue, and Data Center revenue is now expected to decline about 17% in fiscal 2027 as that effect reverses. Cloud revenue, however, is expected to grow about 25.5%, and for the fiscal first quarter the company expects total revenue of $1.705 billion to $1.715 billion. Management said it expects total revenue growth to reaccelerate in fiscal 2028, and that it views subscription ARR as the better measure of the underlying business in the meantime.

The rest of the caution is deliberate. Management pointed to macroeconomic and geopolitical uncertainty, tougher second-half comparisons, and the lapping of the DX acquisition, which added about a percentage point to fiscal 2026's subscription ARR growth.

Big customers carry the cloud business, too. Atlassian ended the quarter with 57,334 customers spending more than $10,000 a year each on its cloud products, a group that accounts for over 85% of cloud ARR.

So the market's reaction makes more sense up close. Even after Friday's jump, shares trade around $144 as of this writing, about 24% below their 52-week high of $189.69. And at about 25 times fiscal 2026 adjusted earnings per share of $5.85, the valuation is arguably reasonable for a company compounding subscription ARR at a high-teens rate while margins move up. Years of heroic growth don't look baked into the price.

Of course, the guide has to hold. If cloud growth slips below the mid-20% rate management expects, the slowdown could become a demand problem instead of a timing one. Margins alone couldn't offset that, and the stock may give back some of this move.

Ultimately, I think investors read this report correctly. The growth guide came down for reasons the company can explain, and the profitability the market has waited years for finally arrived.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian. The Motley Fool has a disclosure policy.