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How Atlassian’s share price reacted to the Chartio purchase

Atlassian’s [TEAM] share price enjoyed a two-day winning streak following the announcement that it had acquired Chartio on 26 February. The stock jumped up 5.8% to $251.50 by 1 March — however, it has since fallen 4% (through 5 March’s close).  

The software industry has been one of the most resilient throughout the coronavirus pandemic. During the first three months of 2020, Atlassian’s share price climbed 14.1%. The stock continued on an upward trajectory to hit an intraday high of $250.03 on 17 December 2020 and ended the year up 94.3%.

 

 

However, despite hitting a 52-week intraday high of $262.40 on 19 February, Atlassian’s share price was down 2.4% so far in 2021 (as of 5 March’s close). Meanwhile, the S&P 500 was up 2.3%, and the Direxion Work From Home ETF [WFH], which had a 2.6% weighting in Atlassian on 5 March, was down 1.2% in the same period. 

According to ETF Channel, Atlassian was held in 30 funds, which represented 2.8% of its $57.1bn market value on 8 March.  

 

A data trove

Incorporating Chartio’s technology will allow Atlassian to add new data analysis and visualisation components to its products, which it said will begin with tracking software Jira. The Australian software giant has also said it plans to centralise and connect data across its products. 

“Atlassian products are home to a treasure trove of data, and our goal is to unleash the power of this data so our customers can go beyond out-of-the-box reports,” Zoe Ghani, head of product experience at Atlassian, wrote in a post that announced the deal. 

Before being acquired, Chartio had 280,000 users that had created 540,000 dashboards. In comparison, Atlassian added 11,617 net-new customers during the three months ended 31 December, giving it a total of 194,334. 

 

540,000

Chartio's total user dashboards pre-acquisition

 

While the companies did not reveal the purchase price, according to Dave Fowler, CEO of Chartio, they had started discussing the deal late last year. 

Atlassian has a history of making deals — it has acquired 16 businesses since its founding in 2002, according to Crunchbase — but investors’ reactions to these announcements has been relatively flat.  

For instance, when it announced a deal with Mindville, which develops software solutions for asset managers, on 30 July 2020, the stock went up 0.3%. However, shares in Atlassian fell 0.3% on the news of a tie-up with Halp — a help-desk software — on 12 May last year. 

 

Rapid growth

The software industry has been in a deal-making frenzy for the past year. According to Hampleton Partners' research, the value of global M&A deals involving software companies amounted to $112bn in the second half of 2020 — the highest on record.

For the full year, 1,477 deals were made in the enterprise software space. Some of the biggest disclosed were Salesforce’s [CRM] $28.4bn acquisition of Slack [WORK], the Intercontinental Exchange [ICE] buying Ellie Mae for $11bn, and Thoma Bravo buying RealPage [RP] for $10.2bn. 

According to Boston Consulting Group, the volume of software deals has continued to grow so far in 2021, as companies outside of technology “increasingly join traditional technology players in pursuing software targets”.

 

"[Companies outside of the tech theme] increasingly join traditional technology players in pursuing software targets” - Boston Consulting Group

 

However, the firm noted that these “non-traditional strategic buyers” appear to be struggling to produce value in the following one to two years after the purchase. Analysts believed this could be because the companies are overpaying and don’t know how to drive value from the investment. 

With Gartner’s research expecting the enterprise information technology market to grow 6.2% throughout the year to $3.9trn, software stocks like Atlassian look to have plenty of growth ahead of them. 

The stock was rated a strong buy among 16 Wall Street analysts on TipRanks, with an average 12-month price target of $270.85 representing an 18.7% rise from its 5 March close of $228.21.

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