The problem is that choosing to be unprofitable is a strategy that maybe worked (or just was fashionable) the past decade under very specific circumstances (lot of free money chasing higher returns in a context of very low rates), but otherwise obviously makes no sense, it's antithetic to the very idea of a business. It's not to be confused with the sane version that is reinvesting profits for growth instead of distributing them as dividends.
In the space Atlassian is in, choosing to be unprofitable while quickly growing could make sense.
It is not necessarily true for other sectors (e-scooters, different delivery services, maybe even Uber), as there is no stickiness in those areas. Whenever a cheaper Uber would come to my city, I'd drop them within a second. They are usually cheap while they can burn VC money.
If Atlassian can keep their system for a couple of years in a big, slow legacy company, the company will end up with tens of thousands of tickets and pages.
Then, no matter how everyone thinks that all the products of Atlassian is terrible (there is a thread about it every second month here), the company will never leave Atlassian because nobody wants to spend the time on migrating all that stuff and everybody is afraid to say that "we will probably not going to need poorly written user stories from three years ago", and they don't want to risk that the new system doesn't cover everything that e.g Jira does.
Once a company is locked in, it will keep paying because paying any amount is easier for them then migrating, training the employees to use the new system, broken links, missing features, etc.
You have it nailed: they offer low-churn products.
Atlassian is well-managed. Their revenue is fine. Their cash flow management is good. Their compensation plan is effective at retaining employees--the stock employees receive is likely to be more valuable at the end dof the vesting cycle than it is today.
Atlassian has got a collection of offerings that are industry standard. When used at large companies, they become quickly entrenched, with very low churn.
It is also a collection of offerings that is chosen by startups. Last quarter through a year from now, I expect that stream to be dry. But they are on 3-year contracts at an awful lot of got-my-Series A startups that will have to tighten their belts in other ways before trying to rotate off of Atlassian.
If you are actually producing e-scooters it could make sense as well when you have plans for reducing your costs long term through economy of scale so you reach the minimum efficient scale.
> but otherwise obviously makes no sense, it's antithetic to the very idea of a business.
How does it NOT make sense? The purpose of a business like this is not to generate some short term profit. These are winner-take-all markets - they're playing for complete and utter domination of an entire product category.
Their Q1 revenue grew 37% YoY - how on earth would you care about profit over what they doing here? They should keep hitting that as hard as they can.
Yep, exactly what UBER is doing and what Tesla has found themselves doing with high spending on their Texas and Berlin Gigafactories. It's a short term pain for domination... expand fast and be the market leader in every country before someone else beats you to it. Then, soak in the profits.
Which works when the unit economics are good. You can take the profit from an operating business, and just inject it back in the business to grow. That sometimes looks like an unprofitable business, but the test is: "if the company freezes growth tomorrow" would it be profitable?
Teslas are profitable, once you pay off the amortized cost of a factory. It isn't clear that uber is profitable. They had 5-10% gross margins pre-IPO, and it has gone negative since.
I think it can make sense temporarily trade profitability for growth, especially if you are using debt/funding to take advantage of certain circumstances. But it certainly isn't sustainable, and the purpose of the growth should be to increase profitability in the not too distant future.
You could rephrase "choosing to be unprofitable" as "spending revenue on more staff and/or higher salaries to retain them" for software businesses. Or in the case of Atlassian, acquisition.
