Why GitLab (GTLB) Shares Are Falling Today
What Happened:
Shares of software development tools maker GitLab (NASDAQ:GTLB) fell 25.1% in the morning session after the company reported fourth-quarter results and provided full-year revenue guidance below expectations. In addition, its full-year EPS guidance significantly missed, coming in 43% below analysts' forecasts.
On the other hand, GitLab beat Wall Street's revenue estimates, driven by a better-than-expected net revenue retention rate (130% vs estimates of 127%). Furthermore, its number of customers with more than $100k in ARR significantly outperformed (955 vs estimates of 859).
During the quarter, GitLab appointed Sabrina Farmer as its Chief Technology Officer. Farmer joined the company from Google, where she was VP of Engineering. Overall, the results could have been better. Software names have been showing weaker 2024 guidance across the board this quarter, and GitLab was not spared.
Following the results, Wall Street analysts largely maintained their sentiment toward Gitlab. Mizuho analyst Gregg Moskowitz lowered the price target on the stock from $87 to $75, adding, "We share investors' disappointment and surprise regarding the guidance...Nevertheless, we believe GTLB is oversold, and we remain confident in its ability to grow due to AI monetization, our view that management's estimate of a $10M-$20M FY25E revenue impact from pricing is conservative, and our research that indicates healthy upsell potential."
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What is the market telling us:
GitLab's shares are very volatile and over the last year have had 31 moves greater than 5%. But moves this big are very rare even for GitLab and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock gained 18.2% on the news that the company reported a "beat and raise" quarter. Third quarter revenue and free cash flow outperformed Wall Street's estimates, driven by extremely convincing beats in dollar-based net retention (128% vs estimates of 119%) and new large customer additions (874 total customers paying over $100k compared to estimates of 752). Notably, net retention stabilized after declining for three quarters. It's rare to see beats of this magnitude for those KPIs.
Looking forward, revenue guidance for the next quarter came in ahead of Consensus. Similarly, full year guidance was raised for revenue, non-GAAP operating income, and adjusted EPS. During the earnings call, the company outlined key drivers for business growth in FY '25. These include: 1) the December launch of Code Suggestions AI, enhancing competitiveness against GitHub Co-pilot; 2) the introduction of the GitLab Dedicated SaaS offering; 3) implementation of user limits on the free offering; and 4) a projected $10 million to $20 million boost in FY25 revenue from the approximately 50% Premium price increase. Zooming out, this was a fantastic quarter that should have shareholders cheering.
GitLab is down 1.4% since the beginning of the year, and at $59.18 per share it is trading 23.7% below its 52-week high of $77.60 from February 2024. Investors who bought $1,000 worth of GitLab's shares at the IPO in October 2021 would now be looking at an investment worth $569.74.
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