Atlassian Sizzles in Year’s Last Tech IPO

Atlassian All Hands April 2015
From left to right: Atlassian co-founders and co-CEOs Scott Farquhar and Mike Cannon-Brooks; president Jay Simons
Photograph by Aundray Cheam

Australian collaboration software maker Atlassian (TEAM) had a big day on Thursday, and not just because its shares ended 32% higher after its debut as a publicly traded company.

Atlassian’s stock opened at $27.48 in midday trading, at a significant premium to its IPO price of $21. The company managed to close slightly higher at $27.78, giving it a market capitalization of almost $5.8 billion.

What makes this feat all the more notable is that Atlassian raised its IPO price range twice before settling on $21. That’s in sharp contrast to the strategy used by file storage service Box (BOX), which kicked off this year’s tech IPO circuit when it went public in January.

On paper, Box had a better day: its shares closed 66% higher. Then again, its IPO price of $14 per share was much lower than originally anticipated. As of Thursday’s close, the company’s stock trades slightly below its IPO price.

While both Box and Atlassian sell software as a service, they take dramatically different approaches in marketing their businesses. During its fiscal year ending in June, Atlassian spent nearly 21% on sales and marketing. It relies heavily on word of mouth to close deals. “It’s a bit like Amazon. … As we get more and more data on our customers, we can automate more and more options for them–such as what features would be most attractive to have–even if they are first-time users,” Atlassian co-CEO Scott Farquhar told Fortune’s Dan Primack.

In contrast, Box invests heavily in marketing and an enterprise sales team to grow revenue. Roughly 58% of its operating expenses for the first nine months of its current fiscal were dedicated to these activities (excluding some stock-based compensation).

Atlassian’s flagship products are JIRA and Confluence, both originally used for tracking software development projects. They account for almost two-thirds of the company’s revenue. It also sells HipChat, a workplace messaging application akin to Slack or Yammer.

One thing you’ll hear investors in Atlassian talk about frequently in the months to come is the company’s intense focus on research and development. Currently, sales for all of its products are growing at least 30% year-over-year. It wants to keep up that momentum, so it has dedicated at least half of the company’s employees to product design, development, and testing. It also encourages them to experiment. “You have to give people the time and latitude to think creatively,” Atlassian’s co-CEO Mike Cannon-Brookes told Fortune in a separate interview on the day of its IPO.

That’s why Atlassian’s two co-founders purposely scheduled one of Atlassian’s quarterly hackathons—a series of 24-hour brainstorming sessions involving project teams from across the company—to kick off during the IPO frenzy. More than 300 teams are competing, representing more than 1,000 Atlassian employees. (The company employs 1,400 overall).

A group of finalists, chosen by employees, will fly to Sydney next week to present their ideas. Why does this matter? One of the company’s fast-growing products, a system for managing help desk requests, was born out of an earlier hackathon.

“This is a real manifestation of how seriously we take innovation,” Cannon-Brookes said. “If we keep doing these things well, that is a more important thing than the IPO over the long-term.”

Why Atlassian’s IPO is attracting so much attention:

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