Key Factors Likely To Drive Atlassian's (TEAM) Q1 Earnings

Atlassian Corporation Plc (NASDAQ:TEAM) is scheduled to report first-quarter fiscal 2018 results on Oct 19.

The company’s robust product portfolio will continue to help it win new customers. Moreover, strategic acquisition like Trello is a key catalyst. We believe these factors will drive the fiscal first-quarter top-line growth. However, escalating expenses are likely to drag down profitability.

Let’s discuss the aforementioned factors one by one.

Clientele Continues to Expand

Atlassian has a strong product portfolio which has been created in-house or through acquisitions. The company’s products are believed to be among the best of breed in their respective fields, thus, helping Atlassian gain new customers.

In fiscal 2017, Atlassian added over 28,000 net new customers, taking the total count to more than 89,000. The company is targeting to achieve 100,000 customers by the end of fiscal 2018.

Trello Buyout to Fuel Revenues

In February this year, Atlassian acquired Trello — a cloud-based team collaboration software maker — with more than 19 million users. Trello services are more popular across business teams in legal, HR, Finance, marketing and sales.

In our opinion, the Trello acquisition has strengthened Atlassian’s capabilities in handling clients across the above-mentioned areas, and compete with Microsoft (NASDAQ:MSFT) and Cisco (NASDAQ:CSCO) which have similar types of services. Apart from this, this buyout has also enhanced the company’s client base by bringing in 13,000 paid customers on a net basis. Therefore, we expect this buyout will drive the company’s top- and bottom-line performance in the to-be-reported quarter.

Rising Expenses Continue to Hurt

However, flaring up expenses will continue to drag down the company’s profitability, in our opinion. The company is heavily investing on research and development, and go-to-market sales strategy to better compete with rivals. Notably, it has registered approximately 46% year-over-year rise in fiscal 2017’s operating expenses.

Currently, the Zacks Consensus Estimate for the fiscal first-quarter revenues and earnings are pegged at $185.33 million and 9 cents, respectively.

Atlassian currently carries a Zacks Rank #3 (Hold).

However, a better-ranked stock in the same industry space is HubSpot, Inc. (NYSE:HUBS) , which sports a Zacks Rank of 1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock has a long-term expected EPS growth rate of 35%.

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