Atlassian bulks up its ITSM play, buys Mindville as it releases Q4 results

Phil Wainewright Profile picture for user pwainewright July 31, 2020
Atlassian staked its claim to the ITSM market with the acquisition of Mindville today as it released Q4 numbers and a $5 billion ambition

Atlassian buys Mindville panel
(via Atlassian)

Developer and teamwork tools vendor Atlassian last night revealed an acquisition that brings it firmly into the IT service management (ITSM) field, alongside Q4 results that saw its FY2020 revenues rise to $1.6 billion. But investors were disappointed that the company declined to forecast revenues for the new financial year, citing macroeconomic uncertainty, and its share price declined almost 10% in US markets today before recovering somewhat.

The acquisition of Swedish asset and configuration management company Mindville adds a configuration management database (CMDB) capability — a cornerstone of any ITSM solution — to Jira Service Desk, Atlassian's service ticket product. Already an Atlassian ecosystem partner with strong integration to Jira Service Desk, Mindville has over 1,700 customers worldwide including NASA, Spotify, and Samsung.

This latest acquisition follows closely after the acquisition in May of Halp, which provides an internal help desk solution built on the Slack messaging platform and which acts as an extension of Jira Service Desk into Slack. Internal teams at Adobe, Home Depot, GitHub, Slack and ClassPass, among a customer base of thousands, use Halp across teams from marketing, security, legal, finance and support to IT.

Taken together, the two acquisitions demonstrate Atlassian's ambition to be a player in the ITSM market, taking advantage of the convergence of IT and software development teams described by co-founder and co-CEO Mike Cannon-Brookes speaking to Wall St analysts last night:

There's a line between IT and software development, that's increasingly becoming blurred. As the team is building software, the teams operating, deploying, and managing that software are becoming ever more shared, or collaborating a lot more. You can see that in both acquisitions. It takes us further towards being the only company that has a broad platform for all sorts of technical team workflows.

Three core markets and transition to the cloud

In an end-of-year letter to shareholders, the co-CEOs emphasized its strategy as focussing on "three core markets ... agile development, ITSM, and work management for all," setting an ambitious target of growing into "a $5 billion global software leader."

But another core message of the letter was around Atlassian's continuing journey to transition much of its longstanding agile development customer base to the cloud. While the company boasts that 150,000 of its 174,000 customers are in the cloud, three-quarters of its paid users still sit behind a firewall at on-premise instances of its flagship products Jira Software and Confluence. Atlassian is still in the process of strengthening the capacity of its cloud offerings to match the capabilities of its high-end on-premise products — its Enterprise Cloud remains on limited release but it's slated for general availability in the coming year.

Ensuring the cloud platform is robust enough while refining migration tools to ease the transition remains a priority, says Cannon-Brookes.

By far the most important strategy is just building a kick-ass cloud offering ... [and then] reducing the friction that takes for customers to move themselves over there in the long-term.

Having said that, Atlassian's customer growth remains impressive, particularly at the high end. It added 3,046 net new customers in Q4, and reported the following growth figures for high spenders:

  • 5,892 customers spending $50,000+, up 44% year-over-year.
  • 267 customers spending $500,000+, up 56% year-over-year.
  • 104 customers spending $1,000,000+, up 76% year-over-year.

Notable numbers but no FY21 forecast

Other notable numbers from yesterday's earnings release include:

  • Total revenue was $430.5 million for Q4 FY2020, up 29% from a year ago.
  • Operating loss was $3.3 million for Q4 FY2020 (-1% of revenues), versus $32.4 million a year ago (-10% of revenues).
  • Net loss was $385.2 million for Q4 FY2020, up from $237.5 million a year ago due to a higher non-cash charge for FX adjustments to the value of debt securities.
  • Cash, cash equivalents, and short-term investments at the end of FY2020 came to $2.2 billion
  • Total revenue of $1.6 billion for the year was up 33% from $1.2 billion for FY2019.
  • Operating income in FY2020 was $14.1 million (1% of revenue), up from a loss of $63.4 million in FY2019 (-5% of revenue).
  • Net loss was $350.7 million for the year, versus $637.6 million for FY2019. In this case the comparison is flattered by FX adjustments to the tune of $197.9 million.

The company declined to issue a forecast for the fiscal year ahead, citing uncertainty around the impact of widening the availability of free editions, which it hopes will lead to more uptake in the future but has a negative impact on short-term revenue, along with the impact of COVID-19. While new customer growth remained strong during Q4, churn of existing customers took its toll, says CFO James Beer. That was partly due to the impact of the new free editions, along with weakness in the SMB market attributable to COVID-19, in particular among smaller tech companies. There were also a small number of customers who asked for help due to cash constraints, either looking to switch from annual to monthly payment, or seeking price reductions.

All of these factors make forecasting difficult, but the company is repeating its experience from the 2008-9 slowdown and taking the opportunity to recruit talent in readiness for a new phase of growth, says Cannon-Brookes:

Whether the recovery slowly comes back like a marshmallow, or snaps back quickly like a rubber band, that's out of our control.

However, what is in control is our ability to continue to invest prudently and for the long-term, so that we can come out of this strongly.

My take

Atlassian's sudden swerve into the ITSM market is unexpected, although the company says that customers have been asking for these capabilities for some time. It makes sense that IT is starting to merge with DevOps teams in many companies, as new digital development increasingly merges with more traditional core application stacks.

Atlassian's move from DevOps team workflow into ITSM is almost the mirror image of ServiceNow's journey from ITSM into enterprise workflow. I wonder whether these two fast-growing businesses will meet in the middle, and how that will work out?

Today's announcement is notable for a big emphasis on ITSM and cloud migration, and much less about digital teamwork, which saw significant announcements earlier this year. I often find it hard to work out whether Atlassian is a digital teamwork tools player or a developer tools player. But perhaps that's because both these categories are merging. Interesting times, indeed.

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