An earnings beat and raised guidance helped Gitlab outperform a tough week for tech.
Shares of software development platform Gitlab (GTLB -5.02%) rallied 17.8% for the week through Thursday trading, according to data from S&P Global Market Intelligence. The stock was down in Friday trading.
Gitlab’s software development platform is catching on big in the age of AI, which was reflected in its second-quarter results reported on Tuesday.
A beat and raise across the board
In its second quarter, Gitlab grew revenue 31% to $182.6 million, with adjusted (non-GAAP) earnings per share of $0.15, up from just $0.01 last year. Both figures handily beat expectations. The company also raised its guidance for the full year to $743 million at the midpoint, up from $735 million as of the prior quarter, and raised its adjusted profit guidance from $36 million to $56 million. Adjusted operating margins expanded by an incredible 13 percentage points, from (3%) to 10%.
Gitlab’s success seems well earned; it was named the outright leader for completeness of vision and ability to execute in the most recent Gartner Magic Quadrant ratings for DevOps (development operations) platforms. That’s impressive, as the company competes against other software development platforms as well as most of the well-funded cloud giants.
That could be due to Gitlab’s status as the only open-source and broadest cloud-neutral enterprise software DevSecOps (development, security and operations) platform at scale, which certainly brings some advantages. For instance, the company is free to incorporate whichever AI large language model it wants into its AI code assistants. Today, Gitlab uses Anthropic’s Claude 3.5. And because it has scale and a broad customer set, that data can feed its AI engine to improve its code development software. CEO Sytse Sid Sijbrandij noted on the call:
… you need a great model and you need a great context. We’re vendor-agnostic. Today, we use the best model on the market for co-generation, Anthropic Claude 3.5. And context-wise, we know more of what a user is working on and what they’ve worked on in the past, because we got the broadest platform, we have the most — more context and better context leads to better AI answers. So, together with that, we feel comfortable in competing.
Gitlab is executing impressively, but it’s not a cheap stock
Gitlab is certainly seeing impressive growth amid the competition along with nice discipline on expenses, leading to an inflection in profits. However, trading at 12.9 times sales, that upside is well-acknowledged by the market.
Gitlab will have to continue growing at a strong pace, with operating leverage, to justify that kind of valuation. But with a $40 billion addressable market, according to Sijbrandij, and a strong leadership position, Gitlab may well be on its way there.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GitLab. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
