Collaboration software company Atlassian (NASDAQ: TEAM) reported calendar Q3 2026 (fiscal Q1 2027) results exceeding the market’s revenue expectations, with sales up 23.7% year on year to $1.77 billion. Guidance for next quarter’s revenue was better than expected at $1.83 billion at the midpoint, 0.8% above analysts’ estimates. Its non-GAAP profit of $1.65 per share was 15.7% above analysts’ consensus estimates.

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StockStory’s take

Atlassian’s third quarter saw stronger-than-expected growth, but the market reacted negatively, reflecting investor concerns despite solid operational execution. Management pointed to expanding enterprise deals, robust cloud adoption, and the rising importance of AI-driven collaboration as key drivers. CEO Mike Cannon-Brookes noted, “Customers are bringing more people, more agents, and more workflows onto the Atlassian platform,” with enterprise adoption highlighted by large migrations and a surge in platform integrations. The company’s focus on hybrid deployments also contributed to higher retention, but revenue split between Data Center and cloud impacted the mix this quarter.

Looking forward, Atlassian’s guidance is shaped by expectations of continued cloud migration, deeper AI integration, and multi-year commitments from large organizations. Management emphasized the importance of Teamwork Collection and Service Collection as drivers of AI monetization, with new pricing models set to launch but not anticipated to generate significant near-term revenue. CFO James Chuong outlined a cautious approach to forecasting, citing macroeconomic uncertainty and evolving customer migration timelines, while CEO Cannon-Brookes stressed, “We are extremely proud to be building for that future,” as the company seeks to expand its addressable market through ongoing product development and strategic investments.

Key insights from management’s remarks

Management attributed the quarter's performance to strong enterprise expansion, AI-driven product adoption, and the ongoing cloud migration of complex customers.

• Enterprise customer expansion: Management cited significant growth from large organizations such as Infosys, SAP, and Workday deepening their use of the Atlassian platform, leading to larger and longer-term commitments. These expansions were visible in strong RPO (remaining performance obligations) growth and an increase in customers spending over $1 million annually.

• Cloud migration momentum: The ongoing movement of customers from Data Center to cloud platforms remained central, with hybrid deployments allowing gradual transitions. While these hybrid deals led to a split in revenue recognition, management emphasized that the largest and most complex customers now see cloud as their ultimate destination, drawn by new AI features and compliance enhancements.

• AI adoption and platform integration: The Teamwork Graph, which connects context and relationships within organizations, became a major driver for AI adoption. The platform’s AMP (Agentic Multiplayer Protocol) and Rovo AI agents saw rapid uptake, with over 10 million human-agent collaborations monthly, supporting broader and deeper workflow automation.

• Product collection growth: The Teamwork Collection—providing expanded AI capabilities and credits—and the Service Collection both saw accelerated customer adoption. Service Collection surpassed 70,000 customers, with ARR (annual recurring revenue) growth above 30%, while Teamwork Collection customer upgrades increased sevenfold year-over-year.

• Hybrid deployment and compliance focus: Management highlighted early submission for key public sector certifications, such as IL5 and FedRAMP, as part of its strategy to meet government and regulated industry demands. These steps are expected to improve long-term customer trust and retention, especially among large and highly regulated organizations.

Drivers of future performance

Atlassian’s future performance is expected to be driven by increased cloud adoption, further AI integration, and evolving monetization strategies.

• Cloud migration and hybrid models: Management expects the continued transition of large, complex customers from Data Center to cloud to support growth, with hybrid deployments smoothing the migration journey. These models are designed to meet customers at varying readiness levels and are reinforced by new public sector compliance initiatives, but may also impact the pace of recognized cloud revenue.

• AI monetization through product collections: The primary path for monetizing AI is through expanded adoption of Teamwork and Service Collections, offering customers more credits for AI features like Rovo agents. Management does not expect significant near-term revenue from new usage-based pricing but believes ongoing product enhancements and deeper integration will drive seat expansion and higher average revenue per user.

• Macroeconomic and competitive uncertainties: CFO James Chuong flagged that guidance for the next quarters reflects caution due to macroeconomic uncertainty, tougher comparisons, and evolving enterprise sales cycles. Management is also mindful of challenges in scaling enterprise go-to-market capacity and maintaining predictability as the business matures and contract structures shift.

Catalysts in upcoming quarters

In the coming quarters, the StockStory team will be tracking (1) the pace and scale of large customer migrations from Data Center to cloud, (2) adoption rates and monetization progress for AI-enabled collections like Teamwork and Service, and (3) the rollout and customer uptake of new hybrid deployment and compliance initiatives. We will also monitor the impact of usage-based pricing changes and shifts in enterprise sales cycles on overall revenue mix.

Atlassian currently trades at $153.85, down from $183.40 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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