Software development tools maker GitLab (NASDAQ:GTLB) beat analyst expectations in Q4 FY2023 quarter, with revenue up 58% year on year to $122.9 million. However, guidance for the next quarter was less impressive, coming in at $117.5 million at the midpoint, being 7.04% below analyst estimates. GitLab made a GAAP loss of $42.1 million, improving on its loss of $46.8 million, in the same quarter last year.
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GitLab (GTLB) Q4 FY2023 Highlights:
- Revenue: $122.9 million vs analyst estimates of $119.6 million (2.77% beat)
- EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.14
- Revenue guidance for Q1 2024 is $117.5 million at the midpoint, below analyst estimates of $126.4 million
- Management's revenue guidance for upcoming financial year 2024 is $531 million at the midpoint, missing analyst estimates by 9.64% and predicting 25.1% growth (vs 69% in FY2023)
- Free cash flow was negative $12.8 million, compared to negative free cash flow of $2.98 million in previous quarter
- Net Revenue Retention Rate: 133%, up from 130% previous quarter
- Gross Margin (GAAP): 88.4%, in line with same quarter last year
“Now more than ever, it is critical for companies to show an immediate return on their software investments,” said Sid Sijbrandij, co-founder and CEO,
Founded as an open-source project in 2011, GitLab (NASDAQ:GTLB) is a leading software development tools platform.
As Marc Andreessen says, "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.
As you can see below, GitLab's revenue growth has been incredible over the last two years, growing from quarterly revenue of $46.1 million in Q4 FY2021, to $122.9 million.
This was another standout quarter with the revenue up a splendid 58% year on year. But the growth did slow down a little compared to last quarter, as GitLab increased revenue by $9.93 million in Q4, compared to $11.9 million revenue add in Q3 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 34.4% year on year to $117.5 million, slowing down from the 75.1% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $531 million at the midpoint, growing 25.1% compared to 68% increase in FY2023.
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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 88.4% in Q4.
That means that for every $1 in revenue the company had $0.88 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is 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 Q4 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 $6.64 billion and more than $936.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We were impressed by the revenue growth GitLab delivered this quarter. And we were also glad to see the improvement in net revenue retention rate. On the other hand, it was unfortunate to see that GitLab's revenue guidance for next quarter and the full year missed analysts' expectations by a significant amount. Additionally, the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results could have been better. The company is down 30.8% on the results and currently trades at $30.86 per share.
GitLab may have had a tough quarter, but does that actually create an opportunity to 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.