Even though GitLab (GTLB) in early June reported better-than-expected fiscal Q1 (April) results and raised its fiscal ’25 (Jan.) total revenue outlook, the stock has fallen as much as 10% since the earnings report.
GitLab, a provider of a DevSecOps platform, now expects FY’25 total revenue of $733 million to $737 million, above the previous forecast of $725 million to $731 million. The FY’25 EPS outlook of 34 cents to 37 cents topped the prior guide of 19 cents to 23 cents.
Recently trading at $44.10, GitLab shares are down 30% YTD. The company’s enterprise value stands at 8.1 times the FY’25 consensus revenue estimate of $736.9 million (representing growth of 27%).
In the April quarter, total revenue of $169.2 million beat the consensus of $165.9 million by 2%, with growth of 33% matching the growth rate from the previous quarter. Subscription revenue (89% of total revenue) advanced 36%, up from 35% growth in FQ4. EPS of three cents topped the consensus by seven cents. Adjusted free cash flow was $37.4 million (22% margin). Total RPO gained 48% to $681.2 million, while current RPO was up 34% to $436.1 million.
GitLab now has 8,976 base customers with annual recurring revenue (ARR) of at least $5k, up 21% from the year-ago level. This customer cohort continues to contribute more than 95% of total ARR. The number of customers with ARR over $100k rose 35% to 1,025. The large customer cohort is seeing steady gains in average ARR per customer, indicating solid demand for the security and compliance capabilities of the GitLab platform.
Dollar-based net retention in FQ1 ticked down slightly to 129% from 130% in the previous quarter. The net retention rate was driven by a combination of seat expansion (contributing about 55%), price hikes (35% contribution) and tier upgrades (10% contribution). During the past four quarters, seat expansion has represented more than 50% of the upside in net retention, with greater adoption suggesting healthy customer commitment to the platform.
GitLab continues to differentiate its platform with AI advancements. GitLab Duo adoption is on the rise across the customer base. On the FQ1 earnings call, GitLab CEO Sid Sijbrandij noted that “AI is quickly transforming the way software is delivered.” Given its broad platform, GitLab’s AI capabilities extend beyond coding and development, enabling customers to leverage the technology for planning, security and operations.
In FQ1, GitLab released Duo Chat into general availability. Chat is a conversational AI interface for GitLab Duo, explained Sijbrandij. It helps customers quickly understand the status of different projects, get assistance with configurations and receive explanations of suggested code. The Chat offering seamlessly integrates AI through a single, easy-to-use natural language chat interface, optimizing DevSecOps workflows and boosting user productivity.
The company’s next important AI add-on is GitLab Duo Enterprise, which combines the developer-focused AI features of GitLab Duo Pro with enterprise-focused features intended to help teams collaborate faster on joint projects. Sijbrandij said GitLab’s larger customers are particularly excited about the security tools coming as part of Duo Enterprise, such as root cause analysis along with vulnerability explanation and resolution.
One explanation for the stock’s recent weakness is the company’s FQ2 (July) total revenue outlook of $176 million to $177 million was only in line with the consensus of $176.7 million. However, the FQ2 EPS outlook of nine to 10 cents topped the consensus of five cents.
Some Wall Street firms recently trimmed their GitLab price targets to reflect lower comparable multiples across the software sector. BofA reduced its target to $80 from $85, but remains long-term bullish that GitLab will be a market share gainer in the DevSecOps category.
Canaccord lowered its target to $65 from $74, but kept its ‘Buy’ rating, saying it likes that GitLab has been able to accelerate subscription revenue growth for two quarters in a row. The firm applauds GitLab’s ability to power revenue growth through seat expansion in this challenging software sales environment.
While Mizuho brought its target down to $62 from $70, it kept its ‘Buy’ rating because of GitLab’s platform expansion, AI features and the company’s excellent sales execution. KeyBanc lowered its target to $62 from $70, but is encouraged by GitLab’s consolidation opportunities in the fragmented DevSecOps segment. The value proposition associated with GitLab’s platform is resonating with organizations.
