If anyone wants a guide as to where the best share market returns may be over the next 10 years the rise of enterprise facing, cloud-based software-as-a-service business, Atlassian, trading under the NASDAQ ticker TEAM is probably a good guide.
Since December 2015 Sydney-founded Atlassian shares have soared 450% to US$140.60 to give it a market value around US$34 billion (A$49b).
The company was only founded in 2002, but has benefited from the growth of the digital economy that allows it to provide services globally to businesses on a very high gross profit margins.
In fact Atlassian is now worth more than Australian mobile and internet giant Telstra Corporation Ltd (ASX: TLS) valued around A$46b.
It is also getting closer to the valuation of one of the pillar’s of Australia’s business and consumer-facing banking system in National Australia Bank Ltd (ASX: NAB), which has a value around $A78 billion.
Although it might sound ridiculous that a tech start-up like Atalassian could grow bigger than National Australia Bank one day, it’s not impossible.
The primary advantages tech businesses have over traditional blue-chips like banks and telcos is that they’re much less capital intensive, way more scalable, and operate on far higher gross profit margins.
However, it should be noted that the valuations of the likes of Atlassian and other enterprise-facing software businesses including some on the ASX such as Wisetech Global Ltd (ASX: WTC) or Xero Limited (ASX: XRO) are currently inflated when using conventional valuation metrics.
Arguably they’re also too inflated when using less conventional valuation metrics that have been promoted by investors or markets in part to justify these sky-high valuations.
As such it could be a long, long time before Atlassian ever catches NAB.
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Tom Richardson has no position in any of the stocks mentioned.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Atlassian. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.