Software development tools maker GitLab (NASDAQ:GTLB) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 61.7% year on year to $87.4 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $94 million at the midpoint, 3.65% above what analysts were expecting. GitLab made a GAAP loss of $26.6 million, improving on its loss of $34.5 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) Q1 FY2023 Highlights:
- Revenue: $87.4 million vs analyst estimates of $78.1 million (11.8% beat)
- EPS (non-GAAP): -$0.18 vs analyst estimates of -$0.26
- Revenue guidance for Q2 2023 is $94 million at the midpoint, above analyst estimates of $90.6 million
- The company lifted revenue guidance for the full year, from $388 million to $400 million at the midpoint, a 3.09% increase
- Free cash flow was negative $30 million, compared to negative free cash flow of $4.63 million in previous quarter
- Net Revenue Retention Rate: 130%, down from 152% previous quarter
- Gross Margin (GAAP): 88.7%, up from 87.3% same quarter last year
“We have seen a substantial shift in how enterprises are developing, operating, and securing software by moving to a platform strategy. As a result, our One DevOps Platform is gaining momentum and broader adoption,” 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 $54 million, to $87.4 million.
This was another standout quarter with the revenue up a splendid 61.7% year on year. But the growth did slow down a little compared to last quarter, as GitLab increased revenue by $9.61 million in Q1, compared to $10.9 million revenue add in Q4 2022. 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 61.7% year on year to $94 million, slowing down from the 69.1% 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 49.3% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Profitability
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 88.7% in Q1.
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. 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. It is good to see that the gross margin is staying stable which indicates that GitLab is doing a good job controlling costs and is not under pressure from competition to lower prices.
Key Takeaways from GitLab's Q1 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 $6.04 billion and more than $934.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We were impressed by how strongly GitLab outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 7.37% on the results and currently trades at $42.79 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.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.