Why is Atlassian doubling down on WFH, when everyone is going back to the office?

Sascha: [00:00:02] Welcome to The Dive, the podcast that asks how said business news needs to be your business. I'm your host, Sascha Kelly. Atlassian, the Australian software maker, recently announced it had agreed to buy video messaging platform Flume. I know I hadn't heard of it either. They paid us $975 million for the privilege, which accounted for a significant portion of their cash reserves. Now, this recent acquisition from Atlassian means that they've really demonstrated a commitment to the future of work from home, which is in stark contrast to the line that many big companies are taking this year, which are really winding back on remote work, calling for a return to business as usual. John McDuling, editor in chief at Capital Brief. He recently wrote that there's two key takeaways investors can make about this recent acquisition by Atlassian, and he's going to talk them through it with me today. It's Friday, the 20th of October. And today I want to know just why is Atlassian investing in the work from home trend when other companies are saying it's back to work from the office? John, welcome to the Dive. Thanks for joining me today.

John: [00:01:14] Thanks for having me, Sascha.

Sascha: [00:01:16] So let's start with a bit of context for Atlassian. It's a name that I think a lot of us are very familiar with, but we know they've had a pretty tough 2022. They were down about 70%, but this year back up around 60%. What's going on with the software giant at the moment?

John: [00:01:35] Atlassian was caught up in the tech selloff last year that affected almost the entire tech market. These concerns about rising interest rates and particularly companies that are generating big profits that are sort of focussed on growth and burning through cash got hit particularly hard. Lesson doesn't really fall into that category, but it was affected by that sentiment. And this year we've actually seen a pretty good rally for a lot of those tech names as well. The Nasdaq is up quite strongly so far this year. A lot of that is fuelled by the dynamic in the market at the moment, especially towards the top end of the Nasdaq. And Atlassian has sort of risen in tandem with that as well. So yeah, it really is leveraged to the broader market kind of story.

Sascha: [00:02:20] Yeah, I really is one of the buzz themes for 2023. But today we're going to talk about this recent acquisition that Atlassian has made to the tune of $1,000,000,000. Can you tell me about Loom? 

John: [00:02:34] Yeah. So Atlassian made its biggest acquisition today, spending one and a half billion dollars in Aussie dollar terms on Loom, which is a screen recording. Start-Up Which I must confess that I hadn't heard of until last week when this deal was announced. I did speak to our developer here at Capital Brief and our head of design who are both familiar with the service. It's a screen recording. Start-Up that was used. It was one of those software tools that became insanely popular during COVID when everyone was working remotely. If you're explaining a new piece of software or a new product internally to other people in your company, people often record their screens these days, and this is a tool that allows you to do that really professionally with all sorts of added features. Some of them are powered by AI transcripts and all sorts of things you could sprinkle into these presentations to make them look really professional. 

Audio Clip: [00:03:28] Why don't you replace some of those meetings with a loom? A loom is a quick and easy way to record a video message of yourself, your screen or bowl, and share it instantly with a link. 

John: [00:03:37] And Atlassian is one of the companies at the vanguard of this remote work hybrid work movement, both in terms of their own internal culture, but also in terms of the fact that they make products for largely for software developers who are more inclined than other people in the economy to be working both remotely and in distributed teams across borders and that kind of thing. So that now acquired a tool that fits quite nicely on the face of it, into their portfolio of products. 

Sascha: [00:04:08] You covered this acquisition in your recent piece for Capital Brief, and you wrote that there's two takeaways for investors from this recent investment. I mean, you've started to talk about one of them just then, which is the work from home trend. So let's pick up that one first. There were so many big headlines this year from big companies, Disney, Starbucks. And I think the most kind of prescient one was Zoom, because, you know, you think of all of the people who are going to benefit from work from home. They would. Yeah. And, you know, they've all been asking their staff to return to the office and get back into quiet before COVID normality kind of thing. Why do you think Atlassian is just so long on the work remotely trend? 

John: [00:04:48] I think part of it has to do with the fact that it's an Australian based company that operates all around the world and I think from their point of view, running a company where they don't have to spend their lives on a plane is. She's obviously attracted to them and obviously other members of the team who are based down here, and likewise for the people in San Francisco and Austin and these places as well. So I think that is certainly part of it. I think historically this might have changed a bit more recently with changes in the sort of tech job market. But I think historically they also saw it as a major recruiting advantage because, again, if you think of software development that work, it is quite well suited to working remotely like if you had done coding. It's the kind of thing that you can do from home and you don't necessarily need to be around other people. So I think it probably has the most generous remote work policies in the market of anyone. Interestingly, another Australian company, Canva, is also in that category as well. They don't require their team members to be in the office as much as most of the kind of old economy companies do. And I think that's part of that speaks to the fact that they're both in Australia operating in global markets and Australia is quite far away from the rest of the world. I think that is actually, you know, I wouldn't underestimate that part of it. 

Audio Clip: [00:06:06] Do you see that up there? That's your work. You see the problem? I have a feeling you're about to tell me. It's just a document. It lacks layers, depth dimension. It lacks you. Yeah, but I used to call it fun. This is where loom comes in. Imagine being able to attach a piece of yourself, your humanity, your view to everything you send out. That's a lot of me. 

Sascha: [00:06:29] There's also a second takeaway that you've identified, and that's kind of what this acquisition says about the market more broadly. Let's pick up that idea in just a moment. Welcome back to the Dive while I've got you. Let us know what you want me to talk about. Write to contact at equity rates dot com or jump in our reviews section. Send a carrier pigeon. Anything you'd like. Just let us know what you'd like us to dive into. Let's get back into my conversation with John McDuling, editor in chief at Capital Brief. The second takeaway that you raise is that it is a significant one in terms of, you know, watching the market, the valuation gloom exited that was lower than the previous funding round. So it's down. But interestingly, and I think what we can all observe from this is that it's a premium to public company multiples. So what do you think this indicates? 

John: [00:07:32] Yeah. So to me, this indicates it could indicate a sign of a bottom in the market for private tech valuation. So as I mentioned earlier, a lot of publicly listed tech stocks have been doing well this year. But in the private tech markets, it's been a different story. And part of that is because these privately held tech start-ups are often the ones that are losing the most money. And that's where those are the kinds of companies that investors have been retreating from at a time when interest rates are rising because obviously financing those losses becomes more expensive. But when you see a deal being struck, people often talk about down rounds in the private markets. When someone has to raise money at a valuation below the previous valuation. Well, this is kind of a downside. Like this deal. The exit price was lower than the price of their last funding round, but that's actually a sign that the investors in this company are being a bit more realistic about exit valuations possible to them and the fact that Mike Cannon-Brookes and Scott Farquhar Atlassian are willing to spend one and a half billion dollars and I think it's half of their cash reserves is also a good sign for investors. It's a sign of confidence from these two entrepreneurs about the future outlook for this business and their business moving forward. And if you put those two things together, that is the kind of conditions you need to see. You know, it's kind of like setting a floor in the market from which valuations can move higher. 

Audio Clip: [00:08:58] So I've experienced a lot of success in my life Over a decade ago I started a business straight out of uni with my mate Scott, now having no prior business experience and not really any grand plan. In fact, our goals when we started were not to have to get a real job and to not have to wear a suit to work every day, check and check. 

Sascha: [00:09:22] Yeah, I think mentioning the fact that they're spending 1.5 billion when it comes to Australian dollars, I mean that's a sizable chunk of change. That's another interesting element I think for us as investors to notice. 

John: [00:09:35] Totally, totally. It's a lot of money in anyone's book and I think it can certainly be viewed as a sign of confidence from them. 

Sascha: [00:09:43] John I think that's all we have time for today. It's been my absolute pleasure. Thanks for joining us on the dive. 

John: [00:09:48] Thanks very much, Sascha.

Sascha: [00:09:49] And that's it for this week. I'll be back in your feeds on Monday with another Fast three. And then later in the week, I'm going to be unpacking the sand banking free trial with Tracy from the Crypto Curious podcast. I can't wait to follow the headlines and I know that she's going to help me unpack all of it. As always, it helps greatly if you jump in your podcast player and give us a five star review. I know, I know. I ask every week, but it really does make a difference. Have a great weekend. Until next time.