Potentially the last tech IPO of the year ended its first day of trading with a bang.
Atlassian, a maker of collaboration and software development tools, ended the day up about 32%. With that rise, Atlassian — which raised money at a $3.3 billion valuation before going public — is now worth nearly $6 billion, making it one of the strongest IPOs of the year.
Atlassian’s products include Slack competitor Hipchat, putting it up against one of the hottest startups in Silicon Valley — but that clearly is not worrying public market investors. At least, not yet.
The company priced its initial public offering at $21, rising from an initial range of $19 to $20. It’s been an incredibly strong performer in a year of somewhat lukewarm IPOs, such as Square’s and Pure Storage’s initial public offerings.
As my colleague Katie Roof pointed out, while investors have given a pass to startups on profitability in favor of growth, the public markets have heavily rewarded Atlassian for being a profitable company.
Investors are “responding to the unique characteristics of the company,” Atlassian President Jay Simons said earlier. It’s “a business that’s really been thoughtful about the long-term.”
The company’s strong performance is not entirely a surprise. Atlassian has a number of characteristics that may have made it not merely palatable to investors, but enticing. The company managed net income expansion in its third quarter compared to the year-ago period, while also expanding its revenue from $67.9 million to $101.8 million.
Many companies that either have gone public recently or have expressed interest in the transaction, have shown increasing losses, and growing revenues. Such firms can demonstrate improving margins if their top line grows more quickly than their bottom, but investors have appeared more skittish recently about growing losses in any context. Box’s share-price gyrations following its most-recent earnings report is ample evidence of the fact.
Before pricing above range, Atlassian projected that it would have more than $600 million in cash and equivalents on hand following its IPO. With its higher-than-expected sale point, the firm should be on an even more firm financial footing.
Still, Atlassian remains only modestly profitable. The firms third quarter net income of $5.08 million, while welcome, is not precisely massive. The company notably spends far more on research and development than marketing, an anomaly among many technology companies looking to file.
Regardless, Atlassian has shown expanding revenue, profit, and, now, cash. When you have the full package, the story from an investor standpoint writes itself. Atlassian has therefore shown the the IPO window remains open, but perhaps also that the bouncer of public sentiment may still exist. Just for other companies.
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