Atlassian (TEAM) Q1 2027 earnings review
Atlassian lifts its outlook, but second-half growth slows to 9%
Atlassian's cloud business keeps growing faster than it planned, while its old server product fades more slowly. Revenue rose 24%, and the backlog of contracted revenue grew 44% as large customers signed longer deals, chief executive Mike Cannon-Brookes said. Margins ran far above plan, but by our math the raised outlook still has revenue growth slowing to about 9% in the second half.
| Revenue | $1,772 million +24% from a year ago |
|---|---|
| Cloud revenue growth | 30.5% plan was about 28.5% |
| Operating margin, excluding one-offs | 32.5% 22.5% a year ago |
| Full-year revenue outlook | Raised to 13.75% growth from 13% three months ago |
⚖️ Verdict: 🟢 Bullish
The story got better, because Cloud, the part of the business that carries the future, beat its plan and the company lifted every target it set three months ago. The bad news: the Data Center beat came from hybrid deals that keep revenue in the old product, and the plan allows slightly less new subscription revenue over the rest of the year than Atlassian added a year earlier.
The question now is whether the second-half slowdown is only last year's Data Center licence timing or also cooler demand. Contracted revenue says timing; the subscription target, which removes that timing and still slows to 18.5%, says partly demand. Next quarter's net new subscription revenue will tell.
🐂 Bull Case
Cloud Grew 31% and Beat Its Own Plan
Cloud is the version of Atlassian's software that the company hosts for customers, and it now makes up almost three quarters of revenue. Cloud revenue grew 30.5% to $1,302 million. That beat the 28.5% the plan called for, even though hybrid deals with large customers booked part of their spending under Data Center instead.
Finance chief James Chuong said migrations from Data Center added mid-to-high single digits to that growth, so most of it came from existing Cloud customers adding seats and buying bundles. Teamwork Collection, the bundle of Jira, Confluence and Loom with extra AI credits, now has more than 3,000 customers, seven times a year ago.
- Service Collection, the help-desk bundle: more than 70,000 customers, recurring revenue above $1 billion growing over 30%
- Net revenue retention, what existing customers spend versus a year ago: above 120%, Cannon-Brookes said
- Cloud share of revenue: 73.5% this quarter, from 69.6% a year ago
This matters because Cloud is where Atlassian sells its AI features, so the faster it grows the less the fading Data Center line weighs on the total. But the plan has Cloud slowing to 27% next quarter and, by our math, to about 24% in the second half, and Chuong gave no reason beyond the DX acquisition lapping and harder comparisons.
What to watch: Cloud revenue growth next quarter against the 27% plan. A result near 30% again would show the second-half plan is cautious rather than a forecast of cooling demand, because the hybrid deals that held back this quarter would then have been absorbed.
Costs Fell Faster Than the Plan Allowed
Atlassian cut about a tenth of its staff last spring, and this is the first quarter where the savings show with no restructuring charge against them. Operating margin excluding one-offs reached 32.5%, against the 28.5% the plan called for. On a GAAP basis the margin reached 10.7%, against a 6.5% plan.
- Research and development: 42.8% of revenue, from 52.8% a year ago
- General and administrative: 9.7% of revenue, down 2.7 percentage points
- Stock-based pay: 20.1% of revenue, from 24.5%
- Last year's restructuring charge: 3.9 points of revenue; none this year
The letter credits revenue running ahead of plan, slower hiring and "lower-than-expected operating costs". Part of that is timing of spend, which the letter says itself, so the full-year plan of 25.5% stays well below this quarter. The gap is where the company has beaten every margin plan for a year.
What to watch: operating margin excluding one-offs next quarter against the 26% plan. Another result several points above it would mean the cost base, not the timing of spend, is what changed after the restructuring.
Large Customers Sign Longer Contracts
Remaining performance obligations, the revenue Atlassian has under contract but not yet delivered, reached $4,746 million, up 44% from a year ago. Chief executive Mike Cannon-Brookes named Infosys, SAP, Workday and Westpac as customers that expanded this quarter, and said customers spending over $1 million a year grew more than 30%.
The caution is that contracts are getting longer, so the headline overstates near-term revenue: the part due within twelve months grew 28%, in line with revenue. Even so, both rates run far above the 13.75% the full-year plan calls for, which is why the outlook reads as cautious rather than as a forecast of weaker demand.
What to watch: the twelve-month portion of contracted revenue next quarter. If it keeps growing near 28% while revenue growth slows toward 15%, the slowdown is a matter of when revenue is recognised, not of how much customers buy.
Full-Year Plan Rises on Every Line
Atlassian raised all seven lines of its full-year outlook three months after setting them, including the target for subscription recurring revenue, now 18.5% growth. Finance chief James Chuong said the Cloud beat flows through to the full year, but the $33 million Data Center beat does not, because of "timing mechanics" in how upfront licence revenue is booked.
That is why the revenue target rose by about $49 million by our math while the quarter beat the middle of its range by $62 million. Atlassian has now beaten the top of its quarterly revenue range eight quarters in a row. The beats ran from 0.3% to 6.6%, so a raise smaller than the beat fits the pattern rather than signalling doubt.
What to watch: next quarter's revenue against the $1,825–1,835 million range. A beat of the usual size would, by our math, put the year on track for about 15% growth even if the second half only matches the current plan.
🐻 Bear Case
Agent Use Grew 15x, Recurring Revenue Growth Held
"The value of Jira and Confluence for coordination in the AI era is even stronger than it has been in the past," Cannon-Brookes told an analyst who asked whether AI coding agents reduce the need for his tools. His evidence is usage: 2 million people a month now use the Atlassian MCP Server, the connector that lets outside AI agents read and write Jira and Confluence, and they make 15 million tool calls a day.
The numbers that pay the bills did not move with that usage. Subscription recurring revenue has grown between 22% and 23% for four quarters, and the full-year plan has it slowing to 18.5%. Atlassian charges per user, and agents do not buy seats. Usage-based pricing starts in December, but Cannon-Brookes said "we're not assuming any meaningful UBP revenue in FY '27 at the moment".
The company's answer is the bundle: customers on Teamwork Collection run twice as many agents and add Jira and Confluence seats faster than others, so AI sells seats indirectly. That is plausible, but it keeps AI revenue invisible. A platform whose agent traffic rose 15 times while seat-based growth stayed in the low twenties has not yet shown that agents are paying customers rather than free users.
What to watch: subscription recurring revenue growth next quarter, set against the 22.5% just reported. A reading that slips toward the 18.5% full-year plan while agent traffic keeps multiplying would mean usage and paid seats have parted ways, and the pricing change in December would become the only route to AI revenue.
The Plan Has New Subscription Revenue Shrinking
Subscription ARR is the yearly value of Atlassian's active Cloud and Data Center subscriptions. It added $206 million in the quarter, more than the $177 million a year earlier, and reached $6,812 million. The full-year target of 18.5% growth, raised half a point, still points to a slowdown from here.
By our math that target leaves about $1,016 million of new subscriptions over the next three quarters, against $1,047 million in the same period last year, a 3% decline. The letter gives the reason: "the expected contraction in Data Center as customers expand less ahead of their migration to the Cloud". Chuong added that the DX acquisition laps in Q2 and the second half faces harder comparisons.
What to watch: net new subscription revenue in Q2, against the $450 million added in the same quarter last year. By our math the plan needs about $340 million a quarter, so a Q2 figure near last year's would mean the full-year target is cautious rather than a sign that Cloud customers are buying less.
AI Costs Push the Gross Margin Plan Down
Gross margin is the share of revenue left after the cost of hosting and supporting the software. It reached 85.2% this quarter, up 3.2 points from a year ago, though 2.2 points of that come from a restructuring charge in last year's figure. The letter credits cheaper cloud infrastructure and "intelligent multi-model routing through our AI Gateway", which sends each AI task to the cheapest adequate model.
The plan still points the other way: 84.5% for Q2 and for the year, below this quarter, because of "growing usage of Rovo and hosting costs as more of our business shifts to Cloud". Rovo is the AI assistant included in subscriptions, so every extra query is a cost with no matching revenue until usage-based pricing produces some.
What to watch: Q2 gross margin against the 84.5% plan. A reading below 85% would mean AI usage has begun to outrun the efficiency gains that offset it this quarter, and the cost of giving Rovo away would start to show.
Data Center Beat Because Migrations Take Years
Data Center is the version of Atlassian's software that customers run on their own servers, and support for it ends in March 2029. Its revenue was meant to fall 4% this quarter; instead it grew 4.8%. Chuong said large customers signed hybrid deals that let them move to Cloud over several years, and "because we don't charge customers twice on these hybrid deals", the arrangement "meant slightly more revenue on Data Center and slightly less on Cloud this quarter".
He called the effect on Cloud "modestly less than what we had expected" but gave no figure. The plan keeps the decline coming: 14% in Q2 and, by our math, about 24% in the second half. Atlassian also set its government-cloud certification dates at July 2028 and January 2029, which an analyst noted leave some customers on Data Center past the end-of-support date; Chuong did not say how many.
What to watch: Data Center revenue in Q2 against the 14% decline the plan calls for. Another quarter of growth would mean hybrid deals are holding revenue in the old product and the Cloud figures understate how far the migration has gone.
👓 Other Themes
The Plan Assumes an Uncertain Economy
The letter says the outlook "contemplates the ongoing macroeconomic, fiscal, and geopolitical uncertainty" and the continued build-out of the enterprise sales force. Chuong repeated the point on the call and gave no example of a customer delaying a purchase. Revenue grew 25% in the Americas and 24% in Europe, the Middle East and Africa; Asia Pacific grew 18%.
💲 Other KPIs
Growing faster again: up 12.9% from a year ago, after three quarters near 10%. These are the paying accounts that make up more than 85% of Cloud recurring revenue, so a rising count means new customers are crossing the threshold, not only old ones spending more.
Barely moved against a fast-growing business: up 4.9% from a year ago while revenue grew 24%. Deferred revenue is cash customers have paid for service not yet delivered, and it fell 10% from June because most annual bills go out in the spring. The growth in commitments now shows up in multi-year contracts, which sit in remaining performance obligations rather than here.
Down 2.3% from a year ago after the company bought 3.3 million shares in the quarter. The $588 million of buybacks on the cash flow statement exceeded free cash flow of $463 million, so cash minus long-term debt fell to about $130 million from $250 million in June. The letter plans a roughly flat share count for the year, with $1.3 billion of authorisation left.
🔮 Guidance
Raised. The plan now has revenue growing about 13.75% this year, roughly $49 million more than before by our math. Most of the quarter's $62 million beat came from Data Center licence timing, so it did not all flow through. By our math the plan leaves about 9% growth for the second half, against 30% in the same half last year.
New. The middle of the range means about 15% growth from a year ago and 3% from this quarter. Atlassian has beaten the top of its quarterly range for eight straight quarters, by 0.3% to 6.6%. If the pattern holds, Q2 lands near $1,916 million by our math.
Raised half a point. By our math the plan leaves about 24% growth for the second half, from 30.5% this quarter. The letter expects the first half to grow faster than the second, because the DX acquisition closed in November 2025 and the comparisons get harder. Migrations from Data Center should keep adding mid-to-high single digits to the year.
New. A step down of 3.5 points from this quarter's rate, about $1,355 million by our math. The acquisition of DX laps in Q2, which the prior outlook put at about one point of growth, so the rest of the step is caution or the business itself.
Raised one point, still a decline. Hybrid deals keep some revenue in Data Center for longer. By our math the plan has the line falling about 24% in the second half, when last year's pull-forward of licence revenue is lapped.
New. The first quarterly decline of the transition, after growth of 4.8% this quarter. The same quarter last year grew 20%, partly on purchases pulled forward by the end-of-life announcement, so the comparison is hard.
Raised three points on better than expected sales of third-party apps. The line is small, about 4.5% of revenue, and Atlassian takes a lower cut on Cloud apps than on Data Center apps, so the mix shift to Cloud works against it.
New. About 20% growth from a year ago, down from 27% this quarter. The company set the first-quarter plan at 12.5% and delivered more than double, so this is a more generous starting point.
Raised half a point, to about $7,828 million of annual recurring subscriptions by our math. The target allows fewer new subscriptions over the rest of the year than a year earlier, which the letter attributes to Data Center customers expanding less before they migrate.
New. Below this quarter's 85.2% and 87.2%, because of Rovo usage and hosting costs as more revenue moves to Cloud. The full-year figures are the same, so the plan assumes no further gain from the model-routing savings seen this quarter.
Raised half a point on both bases. The year still sits far below this quarter's 32.5% excluding one-offs, because Atlassian moved about three points of pay from stock to cash and last year's margin had four points of Data Center timing help. By our math the plan leaves about 22% for the second half.
New. A drop of 6.5 points from this quarter excluding one-offs, and of 6.2 points on a GAAP basis. The company has beaten its quarterly margin plan in each of the past five quarters, so the record argues the figure is a floor.
❓ Key Questions
How much Cloud revenue did hybrid deals move to Data Center?
Chuong said the effect was smaller than expected but declined to give a figure. Without it, readers cannot tell how much of the Cloud slowdown in the Q2 plan is accounting rather than demand.
What is Cloud-only recurring revenue growing?
Subscription ARR mixes Cloud with a Data Center line the company expects to contract. A Cloud-only figure would show whether the 18.5% full-year target hides a Cloud business still growing near 30%.
How much Data Center stays past March 2029?
Government certification dates now run to January 2029, two months before support ends. An analyst asked what share of Data Center revenue will remain after the deadline; management answered with migration pace, not a number.
Is the 20% three-year growth target still in force?
By our math the new plan implies a 19.7% compound rate from FY24 to FY27, just short of the target repeated for two years. Management has not mentioned it for three quarters.
What revenue do Rovo credits and bundle upgrades produce?
AI is sold through Collections and edition upgrades, with usage-based pricing starting in December. A dollar figure would show whether agent use is paying for the AI costs that pull the gross margin plan down.