GitLab (GTLB)

DevSecOps platform provider GitLab (NASDAQ:GTLB) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 29.2% year on year to $236 million. On the other hand, next quarter’s revenue guidance of $238.5 million was less impressive, coming in 1.2% below analysts’ estimates. Its non-GAAP profit of $0.24 per share was 46.3% above analysts’ consensus estimates.

Company Overview

With its all-remote workforce pioneering a new approach to software development, GitLab (NASDAQ:GTLB) provides a single-application DevSecOps platform that helps development, operations, and security teams collaborate to build, secure, and deploy software faster.

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.

GitLab's primary competitor is Microsoft GitHub, following Microsoft's acquisition of GitHub. The company also competes with Atlassian's suite of development tools, as well as point solutions from companies like JFrog, Sonatype, and other DevOps tooling providers.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, GitLab grew its sales at an exceptional 37.1% compounded annual growth rate. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, GitLab reported robust year-on-year revenue growth of 29.2%, and its $236 million of revenue topped Wall Street estimates by 4%. Company management is currently guiding for a 21.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 20.9% over the next 12 months, a deceleration versus the last three years. Still, this projection is noteworthy and indicates the market is baking in success for its products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

GitLab’s billings punched in at $244.5 million in Q2, and over the last four quarters, its growth was fantastic as it averaged 29.5% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

GitLab is efficient at acquiring new customers, and its CAC payback period checked in at 42.8 months this quarter. The company’s relatively fast recovery of its customer acquisition costs gives it the option to accelerate growth by increasing its sales and marketing investments.

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

GitLab’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 122% in Q2. This means GitLab would’ve grown its revenue by 22.5% even if it didn’t win any new customers over the last 12 months.

Despite falling over the last year, GitLab still has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

GitLab’s gross margin is one of the best in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 88.5% gross margin over the last year. That means GitLab only paid its providers $11.48 for every $100 in revenue.

GitLab’s gross profit margin came in at 87.9% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

GitLab’s expensive cost structure has contributed to an average operating margin of negative 11.3% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last year, GitLab’s expanding sales gave it operating leverage as its margin rose by 14.2 percentage points. Still, it will take much more for the company to reach long-term profitability.

In Q2, GitLab generated a negative 7.8% operating margin.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

GitLab has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 25.9% over the last year, quite impressive for a software business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

GitLab’s free cash flow clocked in at $46.47 million in Q2, equivalent to a 19.7% margin. This result was good as its margin was 13.8 percentage points higher than in the same quarter last year, but we note it was lower than its one-year cash profitability. Nevertheless, we wouldn’t read too much into a single quarter because investment needs can be seasonal, leading to short-term swings. Long-term trends trump temporary fluctuations.

Over the next year, analysts predict GitLab’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 25.9% for the last 12 months will decrease to 18%.

Companies with more cash than debt have lower bankruptcy risk.

GitLab is a well-capitalized company with $1.17 billion of cash and no debt. This position is 15% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We liked that GitLab's revenue outperformed Wall Street’s estimates. We were also impressed by the company's optimistic full-year EPS guidance, which beat analysts’ expectations. On the other hand, its revenue guidance for next quarter slightly missed and its full-year revenue guidance was in line with Wall Street’s estimates. Zooming out, we think this was a mixed quarter. Software companies have been held to a pretty high standard this earnings season, and investors were likely hoping for more. Shares traded down 10.3% to $42.10 immediately following the results.

Updated: November 8, 2025 at 9:35 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in GitLab.

GitLab is one of the best software companies out there. For starters, its revenue growth was exceptional over the last five years. And while its operating margins reveal poor profitability compared to other software companies, its admirable gross margin indicates excellent unit economics. Additionally, GitLab’s surging ARR shows its fundamentals and revenue predictability are improving.

GitLab’s price-to-sales ratio based on the next 12 months is 7.3x. Analyzing the software landscape today, GitLab’s positive attributes shine bright. We think it’s one of the best businesses in our coverage and like the stock at this price.

Wall Street analysts have a consensus one-year price target of $58 on the company (compared to the current share price of $45.89), implying they see 26.4% upside in buying GitLab in the short term.