Atlassian Corporation (NASDAQ: TEAM) saw its shares skyrocket 32.1% in premarket trading on Friday, reaching $145.50, following a robust fourth-quarter earnings report that exceeded analyst expectations. The surge reflects investor optimism about the company's cloud growth trajectory, even as its Data Center business faces a planned decline.
The company reported Q4 revenue of $1.766 billion, surpassing the consensus estimate of $1.660 billion by 6.4%, and adjusted earnings per share of $1.87, beating expectations by 24.7%. Cloud revenue grew 31% year-over-year to $1.213 billion, while the GAAP operating margin improved to 12% from negative 2% a year earlier, a 14-point swing. Remaining performance obligations jumped 44% to $4.817 billion, signaling strong future revenue visibility.
For fiscal 2027, Atlassian projects cloud growth of 25.5%, while Data Center revenue is expected to decline by 17%. This mixed guidance reflects a strategic pivot toward cloud offerings, with cloud accounting for an estimated 74.5% of total revenue next year, up from 68.7% in Q4 FY2026. The Data Center decline is tied to the company's end-of-life announcement for on-premises products set for March 28, 2029, as customers migrate to cloud.
CEO Mike Cannon-Brookes highlighted the company's progress, stating, "Q4 closes out a year that proves our long-term strategy is paying off." Free cash flow for the fiscal year reached $1.319 billion, a 20% margin, underscoring operational efficiency.
The company's AI initiatives are gaining traction, with management reporting that customers using its Rovo AI product are seeing recurring revenue grow at more than double the rate of non-users. Rovo-driven actions increased 50% sequentially, positioning Atlassian as a key beneficiary of the AI-driven software transformation.
Analysts have responded enthusiastically. Bank of America upgraded the stock to Buy from Neutral, raising its price target to $175 from $105, citing Atlassian as "an AI beneficiary rather than an AI victim." KeyBanc increased its target to $185 from $115, while Jefferies raised its target to $200 from $150, projecting medium-term revenue growth of at least 20%.
The stock's premarket rally has already priced in much of the good news, but the revised analyst targets suggest further upside. However, investors should note the non-GAAP operating margin guidance for fiscal 2027 is 25%, down from 30% in fiscal 2026, reflecting increased investments. The GAAP margin is expected to be just 4.5%.
Cannon-Brookes also announced plans to purchase up to $250 million of company stock under a Rule 10b5-1 plan, equivalent to roughly 1.7 million shares at the current price. This insider buying signal adds to the bullish sentiment.
While the market celebrates the cloud momentum, risks remain. The Data Center decline could accelerate, and the company's margin contraction may continue. The founder's buy plan is a stated intention, not yet executed. As trading begins, all eyes will be on whether the stock can maintain its premarket gains.
