Atlassian Corporation (TEAM) shares surged approximately 22% in Friday morning trading, following a stronger-than-expected fiscal third-quarter earnings report that alleviated concerns about artificial intelligence disrupting the workplace software market. The stock reached an intraday high of $89.49 before settling around $83.84.
The rally marks a significant shift for the software-as-a-service sector, which has faced headwinds this year as investors worried that AI agents could replace key functions within paid tools. Other SaaS names like Twilio and Five9 also posted gains after their earnings, with Kate Leaman, chief market analyst at AvaTrade, noting that the sector's performance “is not the behavior of a sector in structural decline.”
Strong Cloud Performance and AI Adoption
Atlassian reported fiscal Q3 revenue of $1.787 billion, up 32% year over year, surpassing analyst estimates. Cloud revenue climbed 29% to $1.132 billion, driven by expansion in Jira seats and increased adoption of AI features. CEO Mike Cannon-Brookes highlighted “bigger, longer-term commitments” from customers, while CFO James Chuong pointed to growth in Jira seats and uptake of the company’s AI capabilities.
Despite the revenue beat, Atlassian posted a GAAP net loss of $98.4 million, which included restructuring charges. The company’s remaining performance obligations—revenue under contract but not yet recognized—rose 37% to $4.0 billion, signaling strong future revenue visibility.
AI Product Rovo Gains Traction
In its shareholder letter, Atlassian emphasized enterprise client momentum and AI adoption. Its AI product, Rovo, now boasts millions of monthly active users, with customers using Rovo generating annual recurring revenue at nearly double the pace of non-users. During the earnings call, Morgan Stanley analyst Keith Weiss called it a “really solid Q3 print” and questioned whether Atlassian’s Teamwork Graph could help reduce AI expenses. Cannon-Brookes responded that the system uses fewer tokens—the text bits AI models process—to generate answers.
Mizuho analyst Gregg Steven Moskowitz described the outcome as “impressive” but cautioned that there remains “a lot more work to be done.”
Addressing Seat Count Concerns
The report helped clarify investor worries about seat-based pricing, where fewer human users due to AI agents could reduce revenue. CFO Chuong noted that cloud strength came from increased seats and better cross-selling, not migration bumps. The company’s Data Center business, serving on-premises clients, introduced a timing quirk: a March price adjustment and looming end-of-life shifts pulled forward roughly $50 million in upfront license revenue, which could distort backlog and revenue visibility in future quarters.
Wall Street Optimism and Outlook
Analyst sentiment turned more bullish. BTIG raised its price target on Atlassian to $120 from $110, with analyst Allan Verkhovski reiterating a $120 target. Other targets remain scattered across a broad range.
For fiscal Q4, Atlassian guided revenue between $1.653 billion and $1.661 billion, in line with the consensus estimate of $1.659 billion. The focus now shifts to Jira seat expansion and Rovo adoption following Friday’s rally.
