Atlassian stock: TEAM forms rising wedge as insider sales continue

Atlassian (NASDAQ: TEAM) stock price has pulled back in the past few months as concerns about the company’s growth continued. After peaking at $215.72 in September, the shares have retreated by over 18.2% from the highest point. The stock remains 63% below the highest level on record.

Atlassian is a leading Australian company that owns some of the top products used by companies from around the world. The company’s brands include products like Jira, Confluence, Jira, Opsgenie, Atlas, and Fisheye among others.

Atlassian, like other SAAS companies, had spectacular growth in the last decade, helped by low-interest rates and high consumer adoption. Most companies embraced these SAAS companies to boost their productivity. 

This growth is evidenced by the company’s annual performance. Its total revenue jumped from $207.3 million in 2014 to over $3.5 billion in the last financial year. This growth did not come cheap as the company’s net loss jumped to over $486 million in the last FY from a $15.7 million profit in 2014.

Now, Atlassian is entering a period of relatively slow growth. For one, many big companies already have their communication and project management service provider. Some of the top competitors are firms like Salesforce, Asana, ClickUp, and Smartsheet.

The most recent financial results showed that the company’s revenue growth is still growing. Total revenue jumped by 21.10% YoY to over $977 million. Its operating margin dropped to -2% while the cash flow from operations came in at over $167 million. 

With growth slowing, Atlassian has focused on acquisitions. It acquired Loom, a video messaging platform with over 25 million users. It also bought AirTrack, a company that provides data quality management provider. The company has also invested in artificial intelligence.

Atlassian delivered a weak revenue and profitability guidance. It expects its total revenue to be between $1.010 billion and $1.030 billion in the current quarter with its cloud revenue growth being between 25.5% and 27.5%.

The key challenge for Atlassian is that its insiders are continuing dumping the stock, as I have warned before. Data by Barchart shows that insiders have sold over 1.07 million shares in the past three months and 4.2 million in the past 12 months. This aggressive selling started in the fourth quarter of 2022. 

Notably, the people selling the shares are not junior employees. They include Scott Farquhar and Michael Cannon Brookes, the co-CEOs. Their combined share sales in the past 12 months is equivalent to over $212 million.

However, as I wrote in my Airbnb article, share sales by insiders is not always a bad thing. In Atlassian’s case, the sale seems coordinated since they are selling 8,241 shares regularly. Also, insiders still maintain a huge stake in the company, equivalent to 40.48% of the company. Most insiders in other companies have a smaller stake than that.

Atlassian also has a rule of 40 problem. While the overall revenue growth stands at about 24%, its EBITDA and net income margin is -4.65% and -13.63%. The totals are both less than 40. A small rule of 40 figure means that a company’s growth and profitability are not healthy.

TEAM chart by TradingView

The daily chart reveals that the TEAM stock price has been in a strong bearish trend in the past few weeks. This sell-off started after the shares formed a rising wedge pattern. In price action analysis, this pattern often leads to a bearish breakout. 

Further, the shares have remained below the 25-day and 50-day moving averages and the crucial support at $188.45, the highest swing in February. Therefore, the outlook for the stock is bearish, with the next support point to watch being at $150.

The post Atlassian stock: TEAM forms rising wedge as insider sales continue appeared first on Invezz