Atlassian and ServiceNow: Unrolling the modern day SaaS cloud ecosystem

If you were looking for two standout IT stocks across the last five years, Atlassian (TEAM) and ServiceNow (NOW) would surely be in discussion. It’s perhaps no coincidence that the duo are what is now part of a rapidly growing sector, not only focusing on the cloud ecosystem but typifying ‘DevOps’ practices that allow rapid software development for IT operations.

Atlassian: University beginnings to Australia’s best tech success

Atlassian is a provider of productivity software for collaboration and project management. Founded in Sydney in 2002 by two uni colleagues, the company’s main product, Jira, was released that same year. It has since become a leading application for issue tracking and task administration.

A couple years later, the business developed Confluence, a collaborative software platform designed for employees to share content and work together. At the end of 2015, Atlassian filed for a Nasdaq IPO, valuing the company at US$4.4bn. Since then its share price has soared, the business recently worth US$26.6bn with strong revenue growth coming off the back of global expansion, diverse acquisitions and over 135,000 customers.

ServiceNow: from a (humble) one-man show to global powerhouse

A producer of workflow management and enterprise cloud software, ServiceNow was founded in 2004 with a vision focusing on ways of working among enterprise workforces. The notion of cloud-based computing and software was still new, but little did anyone know the company would redefine enterprise software. ServiceNow’s model centres largely on SaaS (Software as a Service), including help desk functionality, tech support and other IT operations and management issues.

In 2012 the company listed on the NYSE with a valuation of US$2.2bn, reinvigorating life back into the IPO market. Now with over 8000 employees ServiceNow commands a market cap of nearly US$50bn thanks to its tremendous organic growth, plus a series of complementary acquisitions that have broadened its enterprise software offering.

Each possessing a moat…and an envious growth story

It’s one thing for a business to grow into an established player, but if it takes control of its market and establishes an economic moat, that represents a strong investment thesis. Both companies have executed well on this point, all the while fulfilling lofty expectations built into the rising shares.

Underpinning the duo’s ascent is accelerating growth in customer numbers and revenue. Whereas many companies reach maturity and growth slows, the same cannot be said here. And most of all, this growth comes in addition to a high proportion of recurring business.

Atlassian recently reported 38% year-on-year revenue growth of US$309.3m, plus margins that edged higher. With another quarter of impressive growth expected - including sizeable free cash flow – the enormous momentum of the business is in play here. It’s also worth noting that among the company’s diverse customer base, no one customer accounts for more than 10% of revenue.