GTLB - GitLab: Investor Pessimism Is Overdone With Upside Potential Getting Larger

2024-06-09 08:43:08 ET

Summary

• GitLab reported strong Q1 FY25 earnings with revenue growth of 33% YoY and a narrowing of non-GAAP operating income loss.
• The company is seeing strength in customers with $100K+ in ARR as it deepens its partnerships with cloud providers for wider distribution, along with robust production innovation by expanding its SKUs.
• While investor optimism is dampened as revenue is projected to grow slower than cRPO, indicating weakness in new customer acquisition, I am optimistic about the management’s long-term strategies.
• Assessing both the “good” and the “bad”, I believe that the stock is attractively priced at current levels and will drive substantial returns over a 3-year investment horizon.

Introduction & investment thesis

GitLab (GTLB) is a DevSecOps platform that helps companies reduce their software development cycle times and improve productivity. I upgraded the stock from a “hold” to a “buy” rating when I last covered it on March 17th, and my thesis was predicated on my belief that the post- Q4 earnings selloff had created a buying opportunity given the underlying strength in growing enterprise penetration and operating leverage. Unfortunately, the stock is down 18% since the time of my publication....

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