What Happened:
Shares of software development tools maker GitLab (NASDAQ:GTLB) jumped 22.5% in the morning session after the company reported a "beat and raise" quarter. GitLab beat analysts' revenue, adjusted operating income, and EPS expectations. Net revenue retention rate clocked in at 126%, indicating that customers are not only staying but also expanding their use of GTLB's services. Looking ahead, GTLB lifted its full-year revenue and earnings guidance, which came in higher than Wall Street's estimates. Zooming out, we think this was a solid quarter.
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What is the market telling us:
GitLab’s shares are very volatile and over the last year have had 29 moves greater than 5%. But moves this big are very rare even for GitLab and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 25.1% on the news that the company reported fourth-quarter results and provided full-year revenue guidance below expectations. In addition, its full-year EPS guidance significantly missed, coming in 43% below analysts' forecasts.
On the other hand, GitLab beat Wall Street's revenue estimates, driven by a better-than-expected net revenue retention rate (130% vs estimates of 127%). Furthermore, its number of customers with more than $100k in ARR significantly outperformed (955 vs estimates of 859).
During the quarter, GitLab appointed Sabrina Farmer as its Chief Technology Officer. Farmer joined the company from Google, where she was VP of Engineering. Overall, the results could have been better.
Following the results, Wall Street analysts largely maintained their sentiment toward Gitlab. Mizuho analyst Gregg Moskowitz lowered the price target on the stock from $87 to $75, adding, "We share investors' disappointment and surprise regarding the guidance...Nevertheless, we believe GTLB is oversold, and we remain confident in its ability to grow due to AI monetization, our view that management's estimate of a $10M-$20M FY25E revenue impact from pricing is conservative, and our research that indicates healthy upsell potential."
GitLab is down 11.9% since the beginning of the year, and at $53.09 per share it is trading 31.6% below its 52-week high of $77.60 from February 2024. Investors who bought $1,000 worth of GitLab’s shares at the IPO in October 2021 would now be looking at an investment worth $509.43.
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