TEAM Q3 Deep Dive: Cloud Migration, AI Adoption, and Guidance Adjustment

Collaboration software company Atlassian (NASDAQ:TEAM) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 20.6% year on year to $1.43 billion. On the other hand, the company’s full-year revenue guidance of $1.54 billion at the midpoint came in 75.1% below analysts’ estimates. Its non-GAAP profit of $1.04 per share was 24.1% above analysts’ consensus estimates.

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StockStory’s Take

Atlassian’s third quarter results were met with a positive market reaction, reflecting management’s emphasis on accelerating cloud migrations and expanding AI capabilities as core drivers of growth. CEO Michael Cannon-Brookes noted that customer adoption of Atlassian’s AI-powered cloud platform continues to rise, with over 3.5 million monthly active users engaging with its AI features. Management emphasized that the transition from data center to cloud offerings is not only broadening the company’s value proposition for customers but also fueling demand for higher-value product tiers and deeper platform integration. On the call, leadership highlighted that the strategic push into AI and a robust partner ecosystem have led to double-digit increases in user upgrades and migration activity.

Looking to the future, Atlassian’s outlook is shaped by the pace and timing of continued cloud migrations and the monetization of its AI-driven platform. Management indicated that while the cloud migration wave is creating near-term headwinds for revenue recognition, it is expected to drive higher recurring revenue and engagement over time. CFO Joe Binz explained that guidance reflects a conservative approach to non-migration growth drivers, while CEO Michael Cannon-Brookes reiterated confidence in Atlassian’s long-term growth targets. The company intends to invest further in enterprise capabilities, expand its partner network, and leverage acquisitions like DX and the browser company to strengthen its AI and collaboration offerings.

Key Insights from Management’s Remarks

Management attributed third quarter performance to rapid cloud migration, increased adoption of AI-powered tools, and ongoing enterprise customer expansion, while noting the impact of cloud migration timing on revenue recognition.

• Cloud migration momentum: Atlassian’s strategic move to end data center support accelerated customer migrations to its cloud platform, with the number of migrated seats doubling year-over-year. Management stressed that this transition enables customers to access advanced features like automation and AI, which are unavailable on legacy infrastructure.

• AI adoption drives platform upgrades: CEO Michael Cannon-Brookes reported that over 3.5 million monthly users engaged with Atlassian’s AI tools, with usage up more than 50% since last quarter. AI capabilities were frequently cited by customers as a key reason for upgrading to higher-value product tiers and consolidating on Atlassian's platform.

• Enterprise and partner channel expansion: Large enterprise wins spanned major sectors, with Atlassian’s partner network playing a central role in supporting customer migrations and workflow transformation. Management indicated the channel touches about 50% of revenues and has matured alongside the company’s cloud strategy.

• Product integration and ecosystem growth: Atlassian emphasized that its tools, especially Jira, remain deeply integrated across customer environments, with recent acquisitions (such as the browser company) aimed at further enhancing cross-platform collaboration and AI-driven workflows.

• Go-to-market evolution: The arrival of new Chief Revenue Officer Brian Duffy has brought renewed focus to enterprise sales execution, leading to large multi-product deals and increased adoption of the Teamwork collection among Fortune 500 clients.

Drivers of Future Performance

Atlassian expects continued cloud migration, AI monetization, and enterprise expansion to shape its outlook, while recognizing that revenue recognition timing and market dynamics may cause near-term variability.

• Cloud migration and revenue timing: Management anticipates that ongoing customer migrations from data center to cloud will continue to drive recurring revenue growth but acknowledged that the shift results in more ratable (spread out over time) revenue recognition, impacting near-term top-line trends.

• AI platform monetization and new products: The company is investing in new AI-powered offerings and consumption-based pricing models, with management citing growing customer willingness to pay for advanced automation, code generation, and service agents integrated into the platform.

• Enterprise focus and partner leverage: Atlassian plans to deepen its enterprise market penetration with enhanced compliance, governance, and workflow features, leveraging its partner ecosystem and recent acquisitions to accelerate adoption and support complex customer needs.

Catalysts in Upcoming Quarters

In upcoming quarters, our analyst team will closely monitor (1) the pace and quality of cloud migrations, especially among large enterprise customers, (2) the monetization and adoption of new AI-powered products and consumption-based pricing models, and (3) progress integrating recent acquisitions like DX and the browser company to enhance platform capabilities. Execution on these initiatives and continued partner channel expansion will be key signposts for Atlassian’s strategic progress.

Atlassian currently trades at $164.84, up from $160.77 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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