Atlassian TEAM shares have plunged 28.3% in the past month compared with the Zacks Computer Technology sector, Zacks Internet Software industry and the S&P 500’s decline of 12.4%, 17.7% and 7.9%, respectively.

This underperformance raises the question: Should investors cut their losses and exit, or is it worth holding on to? While the near-term headwinds are real, the long-term growth story for Atlassian remains intact, making a strong case for holding the stock.

Atlassian One Month Price Performance Chart

Image Source: Zacks Investment Research

Reason Behind Atlassian Stock’s Underperformance

Several factors have played a role in TEAM’s decline, including broader market weakness and mounting fears over additional tariffs that have the potential to raise costs related to data center services and networking equipment that TEAM uses, affecting its margin.

Additionally, as TEAM has a large part of its software development team stationed in foreign countries, the raised tariff rate can potentially increase the cost of cross-border services and software-related imports, pressuring Atlassian’s bottom line.

Furthermore, investors have noticed that Atlassian’s sales growth has been continuously slowing down in the post-pandemic era. The company that had a history of achieving revenue growth rate of mid-30s percentage range in fiscal 2022 is now posting sales growth in the low-to-mid 20s percentage range in the past two fiscal.

TEAM Grapples With Intensifying Market Competition

Despite Atlassian’s position as a strong player in the collaboration and workflow software space, the market has continuously been crowded by industry leaders like Monday.com MNDY, Microsoft MSFT, Alphabet GOOGL, Salesforce and IBM.

Atlassian’s JIRA software is similar to solutions like Microsoft’s Azure DevOps Server and IBM’s Rational. TEAM’s Confluence product competes with Salesforce Chatter, Microsoft’s Teams and SharePoint and Alphabet’s Google Docs/Workspace for collaborative documentation. Atlassian’s Trello competes with Monday.com. Monday.com offers a long list of additional workflow features not offered by Trello.

Intensifying competition could force Atlassian to resort to competitive pricing and invest more in research and development, hence affecting its margin. For fiscal 2025, the Zacks Consensus Estimate for Atlassian’s earnings per share is pegged at $3.47, indicating year-over-year growth of 18.4%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

However, not everything is gloom and doom for Atlassian.

AI and Cloud Adoption Aid Atlassian’s Growth

Atlassian’s integration of AI across JIRA, Confluence, Bitbucket and Trello is not getting wasted as TEAM is experiencing a surge in customers adopting higher-value AI products. This strategy has contributed to a 40% year-over-year increase in TEAM’s Premium and Enterprise editions sales.

TEAM has long been focused on migrating its customers to the Cloud to charge them on a subscription basis. The subscription-based business model generates strong recurring revenues, providing top-line stability.

Furthermore, TEAM is in the final stages of achieving FedRAMP Moderate Authorization, which will enable a larger share of U.S. government agencies and highly regulated enterprises to securely migrate to TEAM’s cloud offerings, driving its top-line growth.

Conclusion: Hold Atlassian Stock for Now

While Atlassian is grappling with regulatory, macroeconomic and competitive challenges, the company is enhancing its product portfolio to drive future growth. The implementation of AI and cloud strategy is ensuring a steady flow of revenues. Considering all these factors, we suggest that investors should retain this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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