Why GitLab (GTLB) Stock Is Up Today
What Happened:
Shares of software development tools maker GitLab (NASDAQ:GTLB) jumped 18.2% in the morning session after 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.
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What is the market telling us:
GitLab's shares are very volatile and over the last year have had 41 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 6 months ago, when the stock gained 11.5% on the news that the company reported an impressive "beat and raise" quarter. First quarter results exceeded analysts' revenue, gross margin, non-GAAP operating income, and earnings per share estimates. In addition, customer growth remained strong, with a noteworthy 43% year on year increase in customers generating over $5,000 in ARR (annual recurring revenue). However, the company continued to burn cash. Moving ahead, guidance was strong. Revenue guidance for the next quarter exceeded Consensus estimates, while full-year guidance also surpassed expectations and was revised upward. Profitability guidance for the next quarter and full year were in line. Management also touched on the company's readiness for the growing AI revolution adding that "Today, we deliver more AI-powered capabilities to customers than any other DevSecOps platform." Overall, it was a solid quarter with a decent beat on key performance metrics and a strong outlook for the full year.
GitLab is up 36.6% since the beginning of the year. Investors who bought $1,000 worth of GitLab's shares at the IPO in October 2021 would now be looking at an investment worth $577.63.
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