Atlassian (TEAM) Q2 2026 earnings review
First Billion-Dollar Cloud Quarter, RPO Accelerating to 44%—But Free Cash Flow Tells a Different Story
Atlassian delivered a strong Q2 with revenue of $1.59B (+23% YoY), its first-ever $1B+ Cloud quarter ($1.07B, +26%), and RPO surging 44% YoY to $3.8B—accelerating for the third straight quarter. Non-GAAP EPS of $1.22 beat the prior year's $0.96 by 27%. Record $1M+ ACV deals (nearly 2x YoY) and Teamwork Collection passing 1M seats in under 9 months underscore enterprise momentum. However, free cash flow collapsed 51% to $169M (11% margin) on collection timing and billing transition effects. FY26 revenue guidance raised to ~22% growth. Founders pausing selling plans and buybacks accelerating 2-3x in H2 signal management conviction.
🐂 Bull Case
RPO grew 44% YoY to $3.8B, accelerating for the third consecutive quarter, while Cloud NRR ticked above 120% for the third straight quarter. Record $1M+ ACV deals nearly doubled YoY, and 600+ customers now have $1M+ ARR (up ~40% YoY). These forward indicators point to sustained revenue acceleration as multi-year commitments flow through.
Teamwork Collection surpassed 1M seats and 1,000 customers in under 9 months, with 10%+ seat expansion over standalone products. Rovo reached 5M MAU. Customers using AI code-gen tools create 5% more Jira tasks, have 5% higher MAU, and expand seats 5% faster. AI is driving Cloud migrations, edition upgrades, and deeper platform commitments simultaneously.
🐻 Bear Case
H1 FY26 FCF of $283M is down 32% from H1 FY25's $417M. Q2 alone saw FCF plunge 51% YoY to $169M. Management attributes this to billing transition timing and December-heavy collections, but combined with $1.2B in acquisition spending this quarter, cash reserves dropped from $2.5B to $1.2B in six months.
SBC reached $453M in Q2 (29% of revenue), up 19% YoY versus 23% revenue growth. GAAP operating loss was $48M despite the revenue surge. With headcount growing 537 in one quarter (partly from DX and BCNY acquisitions), and GAAP operating margin still at -3%, the gap between GAAP and non-GAAP profitability remains exceptionally wide.
⚖️ Verdict: 🟢
Bullish. The revenue acceleration, RPO trajectory, and AI monetization evidence are compelling. FCF weakness is timing-driven and management expects a strong H2 recovery. The enterprise transformation is clearly working—record deals, rising NRR, and accelerating RPO all confirm deepening customer commitment. The 44% RPO growth versus 23% revenue growth signals acceleration ahead.
Key Themes
Enterprise Transformation Delivering at Scale
Enterprise execution hit new highs in Q2: record $1M+ ACV deals nearly doubled YoY, 600+ customers now exceed $1M ARR (up ~40% YoY), and RPO surged 44% to $3.8B. Cloud NRR ticked above 120% for the third consecutive quarter. The company now serves 80% of the Fortune 500 and 60% of the Forbes AI 50. CEO Cannon-Brookes noted conversations are happening at higher levels than ever, with customers signing 3-year deals as votes of confidence in Atlassian as their AI platform for 2027-2029. Enterprise now represents over 40% of sales (up from 15% in 2020), and the company sees a $14B expansion opportunity within its existing enterprise base alone.
Teamwork Collection: Zero to 1M Seats in 9 Months
Atlassian's primary AI monetization vehicle passed 1 million seats and 1,000 customers in under three quarters—exceeding management expectations. TWC customers show 10%+ seat expansion over standalone products. The bundle (Jira + Confluence + Loom + Rovo) drives wall-to-wall adoption and consolidation of competitor tools. AI credits are baked into the pricing, making upgrades compelling. On the call, Cannon-Brookes positioned TWC as proof that the seat-based pricing model works: customers want predictable costs, and AI value delivery is managed within that envelope.
AI Adoption Accelerating Across the Platform
Rovo surpassed 5 million MAU—up from 3.5M in Q1 and 2.3M in Q4'25 (a 2.2x increase in two quarters). Customers using AI code-gen tools create 5% more Jira tasks, have 5% higher MAU, and expand seats 5% faster. More than 40% of agentic workflows built are in Service Collection customers. Millions of agentic workflows now run monthly. AI is listed as one of the top reasons customers migrate to Cloud and upgrade to Teamwork Collection. The Teamwork Graph now exceeds 100 billion objects and connections, providing Rovo with deep context across first- and third-party tools.
Free Cash Flow Collapsed 51%—Timing or Structural?
Q2 FCF of $169M was down 51% YoY ($343M in Q2'25). H1 FY26 FCF of $283M is 32% below H1 FY25's $417M. Management cites three factors: (1) December-heavy billings shifting collections to Q3, (2) transition from upfront to annual billing on multi-year deals implemented in H2 FY25, and (3) higher severance and acquisition-related payments. They expect significantly higher FCF in H2. The explanation is plausible—the enterprise mix shift naturally creates lumpier cash flows—but bears monitoring. Cash and equivalents dropped from $2.5B to $1.2B in six months, partly due to $1.2B in acquisition spending.
Data Center EOL Driving Cloud Migrations and Revenue Uplift
The March 2029 Data Center end-of-life continues to accelerate migrations. Cloud migrations contributed a mid-to-high single-digit impact to Cloud revenue growth in Q2. DC revenue itself grew 20% YoY in Q2, driven by the EOL revenue recognition impact (more term license revenue recognized upfront for post-September 2025 contracts) and price increases. However, management explicitly warned that FY27 DC revenue growth will 'meaningfully decelerate' as the EOL recognition benefit laps and migrations accelerate. Q3'26 DC guidance of ~33.5% growth reflects a large expiry base, followed by a Q4 slowdown from increasing Cloud migrations.
Service Collection: Fastest-Growing Product at Scale
JSM surpassed 65,000 customers (including half the Fortune 500), with enterprise business growing 60% YoY in Q2. More than two-thirds of Service Collection customers now use it for non-IT use cases—HR, finance, workplace management. Customer service management GA'd in Q2. Over 40% of agentic workflows are being built in service workflows. Atlassian was named a Leader in the Forrester Wave for Enterprise Service Management. Customers like Neta switched from a legacy provider to JSM and cut escalations by 35% and resolution times by 10-30%.
SBC at 29% of Revenue, GAAP Losses Persist
Stock-based compensation reached $453M in Q2 (29% of revenue), up from $379M (29%) a year ago. The absolute dollar growth of $74M exceeds the $65M improvement in non-GAAP operating income ($430M vs $335M). For H1 FY26, SBC totaled $804M versus $665M a year ago—a $139M increase. GAAP operating margin has been consistently negative for years (-3% in Q2), and the company remains unprofitable on a GAAP basis. Non-GAAP operating margin of 27% is strong, but the 30-point gap between GAAP and non-GAAP margins is among the widest in enterprise software.
$1.2B Acquisition Spree Brings Integration Risk
Atlassian spent $1.2B on acquisitions in Q2 alone—DX (engineering intelligence platform, closed November 10) and The Browser Company of New York (Dia/Arc browsers). Goodwill jumped from $1.3B to $2.3B in six months. DX contributes ~75bps to Cloud revenue growth and is slightly dilutive to FY26 operating margin. The Browser Company is a more speculative bet on AI reshaping the browser interface for knowledge workers. Headcount grew 537 in Q2, partly from these acquisitions. Integration of two companies simultaneously while executing the DC-to-Cloud migration and Teamwork Collection rollout adds execution complexity.
Competitive Positioning in the AI Agent Era
Asked directly about Anthropic's Cowork as a Jira competitor, Cannon-Brookes framed it as complementary rather than threatening. He emphasized: (1) Atlassian's MCP Server is one of the most-used integrations for agentic tools, (2) human-AI collaboration still requires approval workflows, business processes, and context that Jira provides, and (3) Jira can now assign work to agents from any platform—Rovo, GitHub, Canva, or third-party agent platforms. The positioning is as the orchestration layer for multi-agent enterprise workflows rather than competing with individual AI tools.
Shareholder Returns Accelerating—Founders Pausing Sales
Management announced plans to accelerate buyback pace in H2 to 2-3x the H1 rate. H1 FY26 repurchases totaled $450M; in January alone, they repurchased more shares than in all of Q2 ($197M). Additionally, founders are pausing their selling plans that have been in place since the IPO—a notable confidence signal. The company stated shares are 'significantly undervalued.' Diluted share count expected to increase less than 1% in FY26, implying buybacks will largely offset SBC dilution.
Other KPIs
Up 28% from $335M in Q2'25. Non-GAAP operating margin expanded 100bps YoY to 27%, driven by gross margin improvement (88% vs 85% a year ago) and operating leverage. GAAP operating loss narrowed from -$57.5M to -$47.7M. The margin expansion is notable given continued heavy investment in R&D and sales hiring. FY26 non-GAAP operating margin guided at 25.5%—below Q2's 27%—reflecting H2 investment acceleration and DX acquisition dilution.
First-ever $1B+ Cloud quarter. Growth stable at 26% for four consecutive quarters. DX contributed ~75bps. Drivers include paid seat expansion (stable across SMB and enterprise), DC-to-Cloud migrations (mid-to-high single-digit contribution), cross-sell, and higher ARPU. FY26 Cloud revenue guidance raised to ~24.3% growth (from ~22.5% at Q1), implying ~$4.3B for the full year.
Decelerating from 13% in Q1'26 and 14% in Q3'25. These customers represent over 85% of total Cloud ARR. The deceleration in count growth contrasts with accelerating revenue per customer—consistent with the enterprise upsell strategy. Over 600 customers now have $1M+ ARR (up ~40% YoY), showing the mix shifting toward larger, higher-value accounts.
Down significantly from $2.9B at end of Q1'26, primarily due to $1.2B in acquisition spending (DX and BCNY) and $197M in share repurchases. Long-term debt remains at $989M. Accounts receivable rose to $912M from $537M at end of Q1—consistent with December-heavy billings that will convert to cash in Q3. Total deferred revenue was $2.4B, stable sequentially.
Guidance
Accelerating. Midpoint of $1,693M implies ~24.8% YoY growth (vs 23% in Q2) and 6.7% sequential growth. Cloud growth guided at ~23% YoY (decelerating from 26%), but Data Center growth jumps to ~33.5% (from 20%) driven by a larger expiry base and EOL revenue recognition impact. Marketplace ~5% growth. Non-GAAP operating margin guided at ~27.5%, up from 27% in Q2.
Accelerating from ~20% in FY25 and raised from ~20.8% at Q1 guidance. The increase reflects strong Q2 enterprise execution and DX acquisition contribution. H1 FY26 revenue was $3.02B; implied H2 is ~$3.34B. Guidance continues to embed conservative, risk-adjusted assumptions for macro uncertainty and GTM execution risk. The 20%+ CAGR target through FY27 was explicitly reiterated.
Raised from ~22.5% at Q1 guide. DX contributes ~1 percentage point. Migrations expected to drive mid-to-high single-digit contribution for the full year. Management expects DC customers to migrate over a multi-year period using hybrid strategies. Key growth drivers: paid seat expansion, ARPU, cross-sell, edition upgrades, and AI-driven adoption.
Unchanged from prior guide. Driven by the EOL revenue recognition impact (~11.5pp contribution per Q1 disclosure) and price increases, partially offset by continued migrations. Seasonality: higher in Q3 (~33.5%, larger expiry base), lower in Q4 (increasing Cloud migrations). Critical warning for FY27: management expects growth to 'meaningfully decelerate' as the EOL recognition benefit laps.
Unchanged despite Q2 outperformance (27%), offset by DX acquisition dilution. H2 margins expected to moderate as operating expense growth decelerates but investment continues. FY27 target of 25%+ reiterated. Management noted headcount growth will moderate in H2 and efficiencies will unlock with scale.
No specific dollar guidance. H1 FY26 FCF was $283M (9.4% margin) vs $417M in H1 FY25. Recovery expected from: (1) collection of strong December billings, (2) lapping FY25 billing transition, (3) enterprise mix naturally shifting collections to Q3. FY25 total FCF was $1.42B (27% margin). Long-term framework: ~500bps spread between non-GAAP operating margin and FCF margin.
Key Questions
FY27 Revenue Bridge with DC Deceleration
You've warned DC growth will 'meaningfully decelerate' in FY27 while reiterating the 20%+ CAGR target. DC was ~$1.47B in FY25 and is tracking to ~$1.76B in FY26. What specific Cloud growth rate would be needed to offset a potential DC decline, and what gives you confidence Cloud can get there?
FCF Normalization Timeline
H1 FY26 FCF of $283M is down 32% YoY despite 21% revenue growth. You've guided to significantly higher H2 FCF, but the shift to annual billing on multi-year deals is structural. What is a reasonable full-year FCF margin for FY26, and when does FCF growth re-align with revenue growth?
Teamwork Collection Economics
TWC has 1M seats across 1,000 customers with 10%+ seat expansion versus standalone. What is the average revenue uplift per customer from a TWC upgrade? And how much of the 120%+ NRR is attributable to TWC versus organic seat expansion and price increases?
AI Cost Trajectory at Scale
Rovo went from 2.3M to 5M MAU in two quarters while gross margin expanded. At what usage intensity would AI processing costs begin to pressure margins? How much headroom remains between current AI cost per user and the ceiling embedded in current pricing?