$GTLB continued the trend of software companies beating lowered expectations with revenue outpacing consensus by 8 points with a 32% Y/Y increase, totaling $150M. Enterprise was the standout with the number of customers over $100,000 in ARR rising by 37% Y/Y, totaling 874 and the Ultimate tier continues to be a significant driver, representing 43% of ARR and accounting for over 50% of bookings. Dollar-based net retention rate came in at 128% (would have been 124% under old methodology) and was flat sequentially. The company also reported its first ever positive non-GAAP operating margin, which came in at 3.7%. and FCF came at -4%. The company experienced a stable Y/Y growth in cRPO of about 34%. RPO growth accelerated to 40% Y/Y, supported by strong sequential growth and impacted by renewals at new price points, and average contract duration has slightly increased to around 15 months. Premium price increases implemented in April will contribute $10-$20M of incremental revenue next year. FY revenue guidance was raised by approximately 3% or $17.5M to $573M-$574M, indicating an expected Y/Y growth of ~35%. Non-GAAP loss is anticipated between $9M to $10M, significantly less than previous forecasts. There was some weakness in net new customer adds in and could indicated the GTM strategy still needs some tweaks. While enterprise showed strength the SMB/mid-market segment continued to be challenged.
Gitlab continued to bolster its platform with enhanced security and governance capabilities which allows developers to address security concerns within their workflow seamlessly, drastically improving developer efficiency. AI was obviously a focal point on the call and they mentioned how they are embedding AI across the software development life cycle. Key innovations like GitLab Duo for AI-powered workflows and GitLab Duo Code Suggestions have reportedly enhanced efficiency by up to 50%. Rolling out GitLab Duo Code Suggestions needs to be more than just as a feature but as a significant revenue stream going forward. GitLab's introduction of Enterprise Agile Planning is a strategic move that not only enhances its existing DevSecOps offerings but also provides a unique opportunity to penetrate the non-developer market. It merges portfolio and project management directly into the software development platform facilitating a more cohesive and streamlined workflow, breaking down silos between development and project management, extending its reach beyond developers to include project managers, business analysts, and other non-technical roles. GitLab is looking to attack traditional project management tools like Jira that have dominated the market for years. Their offering presents a strong alternative that integrates directly with its DevSecOps environment, reducing the need for external tools and plugins. This seamless integration is particularly appealing for companies looking to simplify their tech stack.
Overall, GitLab delivered an impressive quarter, showcasing its strength in security, governance, AI, agile planning, and market adaptation. Their forward-thinking approach is not just catering to current market needs but is also paving the way for the future of software development and operations. However, the challenge lies in GitLab's valuation. Trading at an EV of $8.2 billion with projected revenues of $574 million this year and $736 million next, there’s limited margin for error. This valuation, at nearly 12x NTM sales, assumes robust growth – a 24% compound annual growth rate and FCF margins reaching 30% in order to justify a 10% CAGR over a decade. These are ambitious targets in the notoriously volatile tech sector. To justify a mid-teens CAGR the assumptions required to achieve such returns are even more optimistic given the long execution pathway and inherent risks in GitLab's market. The stock price already reflects a significant portion of future growth, making the investment proposition a risky one at these levels.
Nice, thanks for sharing. I like Gitlab, but NTM "Rule of 40" (revenue growth + profit margin) is pretty soft at 27%. Software companies valued around the same multiples are closer to 40-50% in the NTM.
I only mention because of the increased emphasis on profitability. I tend to think the position is a tad rich where its trading, but I think it'll do quite well over a long time horizon regardless.
Appreciate this write up! Just starting to track GTLB. Which firms would you consider comps? TEAM? Trying to get a sense of whether GTLB's growth is stealing share from other firms.