Michael Sainsbury
January 22, 2016

Atlassian shrugs off market woes

Atlassian shrugs off market woes

Mike Cannon-Brookes: The market-tested Atlassian is crushing it

Australia’s software darling Atlassian has been caught up in the New Year’s stock rout, losing more than 20 per cent of its value over the past two days.

The company’s shares closed at US$22.63 on the New York Stock Exchange on January 19. While still just higher than the company’s US$21 per share initial public offer in December, it is well down from the US$27.78 where it began trading and its US$31.10 high of a few weeks later.

Despite its relative woes, Atlassian is hardly Robinson Crusoe – it has been caught up in one of the most miserable economic starts to a year in living memory.

China’s dramatic market slumps during the first week of the year have been followed by an unending litany of bad news, led by an oil price that is now at about US$26 a barrel and set to fall further as a massive glut combines with soft demand.

The news in the rest of the commodities sector is no better, especially for Australia’s two biggest exports iron ore and coal where prices are now the lowest in a decade.

The geopolitical environment also sucks, with Saudi Arabia and Iran threatening trouble in the Middle East, already in more turmoil than usual (thanks to Islamic State, a refugee crisis threatening to engulf Europe, Russia is playing silly buggers, and the US is staring at the possibility of President Trump.)

It’s a dangerous environment for a very toppy US technology sector that sets the tone and the pace for the rest of the world. The tech sector thrives on confidence, and the remarkable recent turnaround in the US economy has lifted the sector to new heights.

But even ahead of the New Year’s markets’ gloom, there were signs of trouble for tech in the US. The valuations of private companies became volatile, with some being marked down while others, surprisingly were marked up.

Private valuations and public listing prices for similar firms appear to be diverging.

The tech-heavy NASDAQ composite index has fallen by more than 9 per cent since the beginning of the year, about 1 per cent more than the more comprehensive Standard and Poors Index.

Many in the industry are wondering whether the sector is starting to see the air go out of a balloon that towards the end of 2015, was being described as the tech bubble 2.0.

Of course, it’s all about the unicorns, a term coined to describe technology giants – originally software companies which had a valuation of more than US$1 billion

US online tech publication Venture Beat reported that there we 226 unicorns, with a combined valuation in excess of US$1.3 trillion dollars.

Many of these valuations are still private, and an increasing number of Silicon Valley venture capitalists have been critical about the reticence of many highly valued private firms to go public.

"All these private valuations are fake. ... It's all on paper, it's all a myth," Silicon Valley VC Bill Gurley, an investor in Uber and other unicorns, said last October.

In March last year he said: "It's my belief that Silicon Valley and the VC-backed businesses have moved into a world that is both speculative and unsustainable. If we continue down that path, there's going to be more damaged caused."

They are words that should chill anyone who lived through the first dotcom bubble bust at the turn of the century.

The danger is, if there is a real whiff of collapsing valuations ahead, many companies will be trampled to death in the rush for the IPO exits before it is too late.

To give Atlassian its due, it’s a real business and its timing last year – as noted by InnovatioAus.com – was good [possibly exquisite.]

The company has now been tested by the market. Share prices will go up, and they will go down with market sentiment.

But it looks highly unlikely to end up, as many others will in 2016, as a dead unicorn.

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