What Makes Atlassian’s IPO Case Sexy
For its latest fiscal year, the company said it earned $6.8 million on $320 million in revenue. It was the third consecutive year of profits.
The paperwork also showed why: Compared with other hot startups, Atlassian spends far less on sales and marketing. Instead, it relies on word-of-mouth to help win accounts.
The company had 51,000 paying customers representing five million active users, at the end of its latest quarter. More than 850 of those accounts are worth more than $50,000 annually, according to its IPO prospectus.
In the fiscal year ending in June, Atlassian spent nearly $68 million on marketing to raise visibility about the company and win larger accounts. That’s about 21% of its overall revenue for that year.
Most other cloud software companies spend far more. At Salesforce, for example, sales and marketing expenses account for about 51% of total revenue. Cloud file-sharing company Box, meanwhile, spent more than 82% on these activities for the six-month period ended July 31.
Atlassian’s number is even more stunning when you consider that it spent far more money on sales and marketing than usual during its 2015 fiscal year—twice the amount from the previous year—in prelude to its public offering. It plans to reduce that in the near future and then maintain marketing spending in line with growth, Atlassian said in its IPO filing.
For years, Atlassian has touted its “viral” approach to sales as a big differentiator from other cloud software companies, which are notorious for taking years to become profitable. (For perspective, consider that Salesforce still loses money.) You can expect to hear that theme more often from other collaboration software companies like Slack, Asana, and Trello as they mature as businesses.
Collaboration software applications, such as Atlassian’s tool for programmers that tracks project bugs, and its HipChat corporate messaging service, are really only useful if entire teams use them. That’s why the company encourages people to try its products for free. Users start 6,500 free trials daily.
Other collaboration software companies, such as the popular Slack message service, are also fans of the viral adoption model. Last month, the company said it had 1.7 million active daily users, more than twice the number it reported just six months ago. Slack is actually ramping up for a big advertising push, even though the company is growing its user base by about 10% each month.
“We are switching from trying to keep up with growth to trying to generate growth,” said founder and CEO Stewart Butterfield during a conference in Europe last week. This could signal a turning point in the collaboration software company’s maturation. Meanwhile, Atlassian will set the pace in the public markets.