Atlassian’s IPO Isn’t Really A Referendum on Unicorns
Australian software company Atlassian will begin trading on Nasdaq at opening today with the symbol TEAM. The company plans to sell 22 million shares at $21 a share, which would give it a valuation of $4.4 billion—a big jump from its reported $3.3 billion last year.
Atlassian sells collaboration tools for programmers and software project managers, such as the bug tracking tool JIRA, which competes with IBM’s Rational; the instant message app HipChat, which competes with Slack; and the code collaboration and hosting site BitBucket, which competes with GitHub.
Atlassian’s IPO is being touted as a referendum on the prospects of other tech companies with valuations of over a billion dollars—often referred to as “unicorns.” If the public market validates the billions it was supposedly worth when it was still private, the theory goes, then maybe the froth around other unicorns isn’t so frothy after all. But Atlassian isn’t exactly representative of the unicorn crowd.
It’s been a disappointing year for the unicorns. Earlier this year, Box, which was privately worth $2.4 billion, valued its IPO at $1.7 billion and closed on its first day with a $2.7 billion market cap. But it has since stumbled and closed with a cap of $1.6 billion yesterday. Square was privately valued at about $6 billion before its IPO last month. The company closed with a $4.2 billion cap on its first day, where it has hovered since.
Unicorns are venture capital-backed companies typified by spending far more than they earn in a seemingly unending quest for growth. Atlassian, on the other hand, is profitable, just as it has been for 10 years. It has no debt and more cash on hand than liabilities. The company was mostly bootstrapped—in other words, it built its business without venture backing—though it sold $210 million worth of shares in two rounds of secondary market financing in 2010 and 2014. Even with this fiscal restraint, it’s a fast growing company, maintaining an annual growth rate of 46.7 percent since 2013.
While a weak showing for Atlassian today would be certainly be a bad omen for other unicorns, a successful IPO for the company won’t say much about how investors will view companies like Airbnb (valued at $25.5 billion), Dropbox (valued at $10 billion), and Uber (seeking a valuation of $62.5 billion). Rather, Atlassian’s IPO may be more of a bellwether for tech companies further down the food chain—those that have bootstrapped, or taken relatively modest amounts of funding, and those with old-fashioned business models like selling software licenses to large organizations.
Atlassian is representative of these sorts of companies. Founded in 2002 by Mike Cannon-Brookes and Scott Farquhar, Atlassian was early to two trends that have shaped business software this century. The first was web-based collaboration tools, as opposed to old fashioned desktop software that needs to be installed in each employee’s computer. The other was a focus on selling tools and services for software development. Today, web-based software is the norm, and the software industry has exploded, leading to high-demand for products like those Atlassian makes.
Rather than invest in a sales team, the company opted for an e-commerce model and flat pricing structure. That may have lost the company a few sales to companies used to haggling over software licensing fees, but it also made it far easier for companies to price and purchase software. We’ll see today if Wall Street thinks that trade-off was worth it.
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