Investing.com -- On May 23, 2025, Moody’s Ratings upgraded the ratings on Atlassian (NASDAQ: TEAM ) Corporation’s senior unsecured notes to Baa2 from Baa3. Additionally, the rating on Atlassian’s senior unsecured shelf was also raised to (P)Baa2 from (P)Baa3. The ratings outlook for the corporation remains stable. Moody’s anticipates rapid improvements in Atlassian’s credit profile, strong business execution, and its history of conservative financial policies.

Raj Joshi, Senior Vice President at Moody’s Ratings, expressed an expectation for Atlassian’s revenues to grow 20% or more over the next 12 to 24 months. This growth is predicted to be led by an increase in cloud subscription revenues. Atlassian’s operating profit growth is also expected to outpace revenue growth over this period.

Atlassian has invested significantly in enhancing the scalability, performance, and security of its cloud platform. This investment is aimed at hosting large enterprise customers and meeting the data compliance requirements of certain industry verticals. As a result, Atlassian’s cloud platform is well-positioned to benefit from the migration of large enterprises with on-premise licenses to its cloud platform.

Atlassian’s Baa2 rating further reflects Moody’s expectation that the company will continue its conservative financial policies, resulting in strengthening credit metrics with growing earnings.

Atlassian has a strong track record of product innovation and a broad portfolio of software products that enhance collaboration and productivity in software development, IT service management, and general work management workflows. The company leads the market share in the Software Quality and Life Cycle tools category, according to IDC. Atlassian’s artificial intelligence (AI) capabilities, which are now integral to its core product offerings in the cloud, are expected to increase customer retention rates and pricing power.

The company’s liquidity is robust, with approximately $3 billion in cash and marketable securities, and an undrawn $750 million revolving credit facility. This liquidity stands against $1 billion of outstanding debt. Moody’s expects Atlassian to generate approximately $1.75 billion in free cash flow for the fiscal year ending June 2026.

Atlassian plans to maintain at least $1 billion of cash balances and operate with a comfortable cushion relative to its maximum leverage target of 2.5x. This provides visibility into its capital allocation priorities and financial profile over the next 2 to 3 years.

Atlassian’s strong product portfolio and financial profile help to mitigate its risks. Despite facing strong competitors and relatively low barriers to entry in most of its product categories, Atlassian’s expanding portfolio and efforts to target larger enterprises are expected to increase its competitive risks.

The stable rating outlook is based on Moody’s expectation that Atlassian will maintain strong liquidity and generate approximately $1.75 billion in free cash flow in FY 2026, driven by strong revenue growth and increasing non-GAAP operating margins.

The ratings could be upgraded if Atlassian continues its strong revenue and free cash flow growth, and extends its track record of conservative financial policies that support strong cash balances relative to debt and deleveraging with EBITDA improvements. However, the ratings could be downgraded if revenue growth rates decelerate materially relative to expectations, or if large acquisitions or share repurchases result in a decrease in cash position or a significant increase in debt.

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