GitLab (NASDAQ:GTLB) Delivers Strong Q3 Numbers, Stock Soars

Adam Hejl /
2022/12/05 4:11 pm EST

Software development tools maker GitLab (NASDAQ:GTLB) announced better-than-expected results in the Q3 FY2023 quarter, with revenue up 69.1% year on year to $112.9 million. The company expects that next quarter's revenue would be around $119.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. GitLab made a GAAP loss of $48.4 million, down on its loss of $41.7 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) Q3 FY2023 Highlights:

  • Revenue: $112.9 million vs analyst estimates of $106 million (6.5% beat)
  • EPS (non-GAAP): -$0.10 vs analyst estimates of -$0.15
  • Revenue guidance for Q4 2023 is $119.5 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow was negative $2.98 million, compared to negative free cash flow of $37.6 million in previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Gross Margin (GAAP): 87.1%, down from 89.2% same quarter last year

“Companies cannot afford to slow down their software innovation,” 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.

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Sales Growth

As you can see below, GitLab's revenue growth has been incredible over the last two years, growing from quarterly revenue of $42.1 million in Q3 FY2021, to $112.9 million.

GitLab Total Revenue

This was another standout quarter with the revenue up a splendid 69.1% year on year. But the growth did slow down a little compared to last quarter, as GitLab increased revenue by $11.9 million in Q3, compared to $13.6 million revenue add in Q2 2023. So while the growth is overall still impressive, we will be keeping an eye on the slowdown.

Guidance for the next quarter indicates GitLab is expecting revenue to grow 53.6% year on year to $119.5 million, slowing down from the 68.5% 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 42.1% 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 Q3.

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 it going down over the last year, this 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 Q3 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 $6.13 billion and more than $927.7 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 the guidance shows the company is staying on target. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 8.99% on the results and currently trades at $41.8 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.