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Should you buy Atlassian shares?

Credit: Atlassian

Australia’s most successful tech startup will make its shares available to the public this week as Atlassian goes public on the Nasdaq technology market under the code TEAM.

The fact that the Sydney-based company has chosen not to list on the ASX comes as a big blow to the reputation of the local exchange as the lure of the world’s premier technology exchange proves too strong for a business with big ambitions.

The shares available to the public will be Class A and will carry minimal voting rights compared to those retained by the founders, although this is unlikely to prevent the IPO being red hot as investors seek a slice of this fast-growing software business.

The Fairfax media is reporting that the IPO may see Atlassian valued at around US$4.1 billion as it raises around US$500 million to invest for further growth.

The company is already growing at an impressive rate with revenue hitting $US320 million last year at a three-year compound annual revenue growth rate of 47%. Net income is low at just US$7 million last financial year, although it has delivered 10 straight years of profitability while growing at a prodigious rate.

Its core strength appears to be that its Jira software is market leading in something of a niche space, which means as of yet it appears to have attracted little competition.

Jira itself is a piece of software that helps IT teams develop their own software at Atlassian’s clients. Planning, testing, tracking, and releasing software is the daily role of IT services teams and the Jira software is what helps the IT services teams manage this function.

It has traditionally been installed on premises using the customer’s own infrastructure, however, more installations are now starting to be completed via the cloud.

HipChat is Atlassian’s other more junior product with perhaps even bigger potential than Jira. HipChat is among the new breed of staff administration and messaging systems developed to rival email as a messaging system for staff in office-based environments or elsewhere. Its main rival is Slack – a fast-growing US startup that could potentially hit the Nasdaq in 2016.

The potential of both HipChat and Slack is enormous and Atlasssian investors will have high hopes for HipChat’s development in particular. It’s also no surprise that tech startups creating and selling digital messaging systems with the potential to disrupt email are not short of investor support in the private or public markets.

The firm’s primary product remains its Jira software and it remains in growth mode stating it does not expect to pay a dividend for the forseeable future. This will be while it invests in new products, features and research for applications like HipChat that have big potential, but are still in relatively early stages of development in what is likely to be an increasingly competitive market.

As of September 2015 Atlasssian had 5 million monthly users for its software across more than 450,000 organisations and 51,000 customers. The IT spend of global corporations is likely to remain strong with the sticky nature of the software also helping generate the recurring revenues so beloved of technology investors.

All of this suggests it looks a good bet for the long term, although it seems the business is likely to get a frothy tech stock valuation. Expect some volatility when the stock hits the boards this week.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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