Atlassian develops and sells collaboration and project-management software that operate both on premises and in the cloud. The Company generates revenue primarily from license subscriptions. Subscription revenue growth is derived both from free users who convert to paying customers when they exceed the cap on free licenses and from existing paying users who expand their existing subscriptions. In 2020, Atlassian began to transition clients to the cloud, which has accounted for a rapidly growing portion of the Company’s revenues.
In the spring and summer of 2022, as macroeconomic conditions deteriorated and Atlassian’s competitors lowered their revenue guidance, Defendants denied that these conditions were having a materially negative impact on the Company. Throughout the Class Period, Atlassian overstated its financial guidance by concealing trends of slowing conversions from free users to paying customers and slowing growth in paying-user expansion.
The Class Action alleges that, during the Class Period, Defendants misled investors and/or failed to disclose that (1) macroeconomic factors were having a material adverse impact on Atlassian’s business; (2) the slowing conversions from free to paid customers the Company was experiencing constituted a negative trend; (3) paid user growth also had slowed; and (4) as a result, Defendants’ positive statements about the Company’s financial guidance, business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.
The truth emerged on November 3, 2022, when in a letter to shareholders, Defendants revealed that the Company was reducing its outlook for cloud revenue growth for fiscal year 2023, citing “macro headwinds.” The letter to shareholders also revealed that (1) the Company “saw a decrease in the rate of Free instances converting to paid plans,” calling it a “trend [that] became more pronounced” in the quarter and (2) the Company experienced “a slowing in the rate of paid user growth from existing customers.” In response to this news, shares of Atlassian declined approximately 29%, from a closing price of $174.17 per share on November 3, 2022, to a closing price of $123.73 per share on November 4, 2022.
