GitLab (NASDAQ:GTLB) Beats Expectations in Strong Q2 But Stock Drops

Radek Strnad /
2022/09/06 4:12 pm EDT
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Software development tools maker GitLab (NASDAQ:GTLB) reported results ahead of analyst expectations in the Q2 FY2023 quarter, with revenue up 73.8% year on year to $101 million. Guidance for next quarter's revenue was $105.5 million at the midpoint, which is 1.74% above the analyst consensus. GitLab made a GAAP loss of $61.4 million, down on its loss of $40.7 million, in the same quarter last year.

Is now the time to buy GitLab? Access our full analysis of the earnings results here, it's free.

GitLab (GTLB) Q2 FY2023 Highlights:

  • Revenue: $101 million vs analyst estimates of $94.4 million (6.99% beat)
  • EPS (non-GAAP): -$0.15 vs analyst estimates of -$0.23
  • Revenue guidance for Q3 2023 is $105.5 million at the midpoint, above analyst estimates of $103.6 million
  • The company lifted revenue guidance for the full year, from $400 million to $412.5 million at the midpoint, a 3.13% increase
  • Free cash flow was negative $37.6 million, compared to negative free cash flow of $30 million in previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Gross Margin (GAAP): 87.1%, in line with same quarter last year

“We continue to see strong momentum in our business, and our second quarter results indicate that the market is embracing our One DevOps Platform leadership position,” said Sid Sijbrandij, GitLab CEO and Co-Founder.

Founded as an open-source project in 2011, GitLab (NASDAQ:GTLB) is a leading software development tools platform.

As Marc Andreessen say, "software is eating the world" which means the volume of software produced is exploding. But building software is complex and difficult work which drives demand for software tools that help increase the speed, quality, and security of software deployment.

Sales Growth

As you can see below, GitLab's revenue growth has been incredible over the last year, growing from quarterly revenue of $58.1 million, to $101 million.

GitLab Total Revenue

This was another standout quarter with the revenue up a splendid 73.8% year on year. On top of that, revenue increased $13.6 million quarter on quarter, a very strong improvement on the $9.61 million increase in Q1 2023, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates GitLab is expecting revenue to grow 57.9% year on year to $105.5 million, in line with the 58.4% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 46.3% over the next twelve months.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. GitLab's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 87.1% in Q2.

GitLab Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.87 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great gross margin, that allows companies like GitLab to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from GitLab's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on GitLab’s balance sheet, but we note that with a market capitalization of $7.13 billion and more than $930.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth GitLab delivered this quarter. And we were also excited to see that guidance outperformed Wall St’s revenue expectations and that retention rate stayed strong. Zooming out, we think this was a good quarter. But investors might have been expecting more and the company is down 6.28% on the results and currently trades at $44.6 per share.

GitLab may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.