On March 11th after the market close, Atlassian Corporation (TEAM) announced a 10% layoff. The company reiterated guidance to assure investors that the corporate actions do not reflect problems with the business. In his letter to employees explaining the layoffs, CEO and Co-Founder Mike Cannon-Brookes also reminded the company of its strong momentum from the previous quarter: “cloud revenue growth accelerated to 25%+, RPO growth 40%+, 600+ $1m ARR customers and Rovo has passed 5 million MAU”. Cannon-Brookes also acknowledged that AI (Artificial Intelligence) motivated his decisions. The company press release referred to a rebalancing to focus on “key strategic priorities, such as AI and enterprise sales”. As with many layoffs, the company intends to increase focus, accelerate execution, and optimize operations with this reorganization. Importantly for the employees who still have jobs, the CEO provided a narrative for how AI will impact Atlassian’s workplace.
The CEO explained that the company must “adjust” to the higher expectations for the performance of software companies. Without directly calling out the SaaSpocalypse, the CEO both yielded to its pressures and defiantly relabeled this moment as an opportunity. Atlassian is leaning into self-funded investments in AI and Enterprise Sales. Key to investor fears, the company is accelerating its “path to sustained GAAP profitability”. Finally, business pressures and higher expectations are compelling the company to move faster. The move reflects a race to get ahead of the “AI Panic” narrative that has pushed TEAM shares down 53% this year.
The Race to Adjust and Reshape
The CEO claimed that the company is not interested in replacing people with AI. Instead, they “fundamentally believe people and AI create the best outcomes”. Still, reshaping the labor force to adjust toward an AI and sales focused skills mix means a real reduction in roles at the company. The resulting elimination of 10% of the workforce left intact the Atlassians “with the skills to help [the company] thrive as an AI-first company”. Interestingly, the company specifically called out “strong performers, graduates, and Atlassians with transferable skills” as survivors of the layoff. Current employees of other software companies should take note.
Survival Thesis Intact
TEAM remains one of my top contrarian investments in the middle of the SaaSpocalypse caused by the AI Panic. This layoff news does not change the thesis, particularly given the company reiterated full-year guidance and recommitted itself to being an AI-first enterprise. The announcement serves as a reminder that software companies are not helplessly watching AI undermine their business models. Instead, the good software companies are becoming fully AI-enabled operations where AI is a core part of their value proposition to customers.
At the time of writing, TEAM is fading from an initial positive response to the layoff news. Unfortunately, Wall Street tends to celebrate layoffs as margin boosting events. However, the current sell-off in the general stock market quickly faded those initial gains.
Regardless, I continue to hold TEAM shares. I sold a call option against my position as the stock ran into technical resistance at its 20-day moving average (DMA) (the dotted line below). I fully expect future opportunities to sell call options against TEAM and other positions as software companies march down a protracted road of recovery from the SaaSpocalypse narrative.
Be careful out there!
Full disclosure: long TEAM shares, short TEAM call option