Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

To get a glimpse of an actual technology unicorn -- rather than the “they’re so commonplace the name doesn’t fit anymore” variety -- check out today’s IPO filing from Atlassian, a startup behind software called Jira that has caught on with IT help desks.

Atlassian is hardly a household name, and it probably never will be. But the company stands out from the cool kid tech startups for one big reason: It’s cheap.

As a private company, Atlassian has been valued well below many of the public companies in its corner of the tech world, according to newly disclosed figures in the company’s IPO document. This makes Atlassian a novelty in Silicon Valley, which is in the midst of a collective reckoning about the sky-high valuations landed by young technology companies and how much it will hurt when those startups reach the more sober public markets.

There are aspects of Atlassian that make it the cheap exception that proves the pricey startup rule, but let’s revel for a bit in Atlassian’s oddball status.

Atlassian is valued at about 9.3 times its revenue over the past 12 months, based on the company’s $3.3 billion valuation in a private stock transaction last year. Compare that with IT software firm ServiceNow -- Atlassian’s closest public peer -- whose shares trade at about 14.5 times the company’s revenue for the last 12 months, according to data compiled by Bloomberg. Shares of some other fast-growing, publicly traded sellers of business software, including Workday and Splunk, are also pricier than Atlassian on the same basis.

Public Competitors
Atlassian's IT Classmates
SOURCE: Bloomberg

This almost never happens anymore. It’s growing increasingly common to see startups, like payments company Square, whose valuations balloon when they're still private and most likely can’t stay that way. Venture capital firm Bessemer Venture Partners recently calculated a collection of 55 private cloud technology companies were trading at about 11.8 times their pace of annual sales. Similar public companies were significantly cheaper at 5.6 times.

The lofty valuations for many private companies mean it's getting less unusual to see “down round” IPOs, or new stock offerings in which a tech company goes public below its latest valuation as a private company. This is not the direction valuations are supposed to go. 

Atlassian didn’t sell much stock to private investors, which contributed to its modest valuation. The company has sold about $200 million worth of its private stock to outside investors. That sounds like a lot, but it is only about 20 percent of the money Uber gathers with near regularity in a single clump of stock sales. The paucity of fund-raising moments means Atlassian has had fewer opportunities for the investor feeding frenzies that send startup values soaring.

Atlassian is also – gasp! – quite profitable. At a time when the business models of many tech companies appear indistinguishable from setting money on fire, Atlassian generated $98 million of net cash from operations in the year ended June 30. Revenue rose 49 percent, to $319.5 million, and the company posted $6.8 million in net income. Will Goldman Sachs and Morgan Stanley, the banks handling the bulk of the IPO duties for Atlassian, even know how to pitch investors on a technology company that has healthy revenue growth, positive cash flow and relatively cheap shares?

Atlassian’s modest valuation means the potential value of the company hasn’t been squeezed dry by venture capitalists and other startup investors. That should be good news for public company investors, and for Atlassian employees, who won’t be holding fully valued or overvalued shares once Atlassian hits the stock market. This was how it used to be in the old days. Atlassian is a refreshing throwback. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net