Investment Opportunity - GitLab (NASDAQ: GTLB) presents an attractive investment opportunity due to its potential to benefit from the AI industry boom [1] - The company's new AI solutions and growth strategy are key drivers of its future success [1] Analyst's Background - The analyst has over 7 years of experience in the buy-side, with a focus on fundamental bottom-up analysis and quantitative modeling [1] - The analyst specializes in identifying perception gaps to capitalize on over-pessimism and excessive exuberance [1]

AI Investment Opportunities - Stocks with market capitalizations under $10 billion offer significant growth potential if their AI-driven businesses succeed [1] - SoundHound AI and GitLab are two mid-cap stocks showing early success in AI, making them potential candidates for investment in 2025 [2] Company Overview - SoundHound operates a voice AI platform called Houndify, which uses speech-to-meaning and deep-meaning-understanding technologies to enable natural voice interactions [4] - GitLab provides a DevSecOps platform with AI-powered tools for secure software development, including code suggestions and automation [5] Revenue Growth - SoundHound's revenue grew by 89% year-over-year in fiscal 2025 Q3, reaching $25.1 million, partly due to its acquisition of Amelia [6] - GitLab's revenue grew by 31% to $196 million in the same quarter, maintaining a consistent growth rate of 30%-40% over the past six quarters [6] Gross Margins - SoundHound's gross margins were 49% in the last quarter, while GitLab's gross margins were significantly higher at 89% [7] - Higher gross margins for GitLab indicate a stronger ability to convert revenue into profits compared to SoundHound [7] Future Opportunities - SoundHound aims to become an AI commerce voice platform, addressing complex interactions across multiple industries, such as healthcare and banking [9] - GitLab's growth is driven by its GitLab Duo AI add-on and the adoption of its higher-tier platform Ultimate, which now accounts for 48% of its customer base [8] Competitive Landscape - SoundHound faces strong competition from companies like Salesforce and Microsoft, which have developed advanced AI voice and customer service solutions [10] - GitLab's GitLab Dedicated solution, offering data isolation and regional data residency, has gained traction, further solidifying its market position [8] Valuation - GitLab trades at a price-to-sales (P/S) multiple of 9.9 times 2025 analyst estimates, making it cheaper than SoundHound, which trades at over 23.5 times [12] - GitLab's superior gross margins and established business model make it a more attractive investment compared to SoundHound [13]

Cathie Wood has purchased over 1 million shares of software stock GitLab over the last few weeks.Cathie Wood is the CEO and chief investment officer of Ark Invest. Over the last several years, she has earned a reputation for making overly bullish calls on companies that may typically lack the full attention of the rest of Wall Street.Another aspect of Wood's investment prowess that is quite uncommon is that she has Ark publish its trading activity on a daily basis. With this in mind, it's never a question o ...

Market Outlook - Investors face tough choices in 2025 due to rising valuations and a potentially correction-prone market [1] - The field of buyable stocks is narrow, indicating limited opportunities for growth exposure [1] Analyst Background - Gary Alexander has combined experience covering technology companies on Wall Street and working in Silicon Valley [1] - He serves as an outside adviser to several seed-round startups, providing exposure to industry-shaping themes [1] - He has been a regular contributor on Seeking Alpha since 2017 and is quoted in many web publications [1] - His articles are syndicated to company pages in popular trading apps like Robinhood [1]

GitLab (GTLB) shares have jumped 20.6% in the trailing six-month period, outperforming the Zacks Computer & Technology sector’s return of 2.8% and the Zacks Internet Software industry’s appreciation of 12.5%.The outperformance can be attributed to GTLB’s expanding clientele and solid adoption of its AI-powered DevSecOps platform.GTLB outperformed its competitor in the DevOps industry, including Microsoft (MSFT) , which is also making strong efforts through its acquisition of GitHub and continued advancement ...

In this articleGTLBPavlo Gonchar | Lightrocket | Getty ImagesAmid concerns over elevated valuations in the U.S. stock market, there are several stocks that continue to look attractive based on the future growth potential they promise.To pick such stocks, investors can track the recommendations of Wall Street experts, who perform in-depth analysis to offer useful insights about a company's strengths and growth opportunities.Here are three stocks favored by the Street's top pros, according to TipRanks, a plat ...

In Brief GitLab, the popular developer and security platform, has named a new CEO, Bill Staples, effective immediately. Staples, who’s also been appointed to the company’s board of directors, succeeds CEO Sid Sijbrandij, who’s battling a rare form of cancer. Sijbrandij will transition to executive chair of the board. “I believe [Bill’s] passion for software, commitment to customers, and strong track record make him the right person to lead the company going forward,” Sijbrandij said in a statement. “This i ...

Financial Data and Key Metrics - Q3 revenue increased 31% YoY to $196 million [14] - Non-GAAP operating margin reached 13.2%, an increase of over 1,000 basis points YoY [14] - Total RPO grew 48% YoY to $811.8 million, while CRPO grew 39% YoY to $515.2 million [38] - Non-GAAP gross margin was 91% for the quarter [38] - SaaS revenue grew 44% YoY and now represents 29% of total revenue [39] - Adjusted free cash flow was $9.7 million compared to negative $6.7 million in the prior year period [40] Business Line Data and Key Metrics - GitLab Ultimate now accounts for 48% of total ARR [26] - GitLab Duo Pro and Enterprise are driving productivity improvements, with some customers saving up to 2 hours per week and seeing productivity gains of up to 50% [16][20] - GitLab Dedicated is driving demand for Ultimate, with customers achieving quicker time to value and maintaining high security and compliance standards [32] Market Data and Key Metrics - The company has 9,519 customers with ARR of at least $5,000, contributing over 95% of total ARR [37] - The $100,000+ ARR customer cohort increased 31% this quarter, reaching 1,144 customers [37] - Dollar-based net retention rate (DBNRR) was 124% in Q3, driven by seat expansion, increased customer yield, and tier upgrades [38] Company Strategy and Industry Competition - The company is focused on AI integration throughout the software development lifecycle, with GitLab Duo Pro and Enterprise leading the way [16][25] - GitLab aims to be the vendor of choice for a comprehensive approach to AI, leveraging its end-to-end DevSecOps platform and self-hosted models for security [22][25] - The company is seeing strong momentum in the public sector, with a record quarter and in-process designation for FedRAMP moderate [34] Management Commentary on Operating Environment and Future Outlook - Management believes the software transformation is still in its early stages, with AI expected to further accelerate this trend [10] - The company is well-positioned to lead in the agentic AI space, with a focus on autonomous and proactive AI capabilities [25] - Management expects continued growth in the DevSecOps market, with significant opportunities for vendor consolidation [74] Other Important Information - The company announced a bundled offering for GitLab Duo with Amazon Q, integrating AI capabilities for AWS customers using GitLab Ultimate [24] - GitLab Advanced SaaS, powered by technology acquired from Oxide, is now generally available for Ultimate customers, providing more accurate vulnerability detection [31] - The company is working towards deconsolidating its China joint venture, JiHu, with $14 million in forecasted expenses for FY'25 [43] Q&A Session Summary Question: What stood out in Q3 that led to the strong performance? - The quarter was strong across the board, with record performance in the public sector, strong Ultimate adoption, and best-in-class net dollar retention [49][50] Question: How does the company view the future of AI in the DevSecOps space? - Both GitLab Duo Pro and Enterprise will exist in parallel, with agentic AI representing the next evolution in AI, leveraging GitLab's end-to-end platform [54][55] Question: What is the pricing yield for GitLab Duo? - GitLab Duo makes up over 25% of the total net ARR in year one for top deals, with customers seeing significant productivity gains [69] Question: How does the company view the current market for vendor consolidation? - The company believes it is still in the early innings of vendor consolidation, with significant opportunities to replace DIY DevOps solutions [74] Question: How does the company plan to evolve its pricing model for agentic AI? - While the company cannot comment on future pricing, it is considering different models, including consumption-based pricing, as AI agents become more prevalent [98][99] Question: What is driving the adoption of GitLab Ultimate? - Features like integrated security, compliance, and GitLab Duo Enterprise are driving adoption, with customers seeing significant productivity improvements and cost savings [85][86]

Customer Growth and Market Reach - GitLab has over 40 million registered users, with more than 50% of Fortune 100 companies as customers[173] - Base Customers increased to 9,519 as of October 31, 2024, up 16% from 8,175 in 2023[182] - $100,000 ARR customers grew to 1,144 as of October 31, 2024, a 31% increase from 874 in 2023[182] - The company had 1,144 customers with ARR over $100,000 as of October 31, 2024, up from 874 customers as of October 31, 2023[222] - The company expects to expand its global sales and marketing team to acquire new customers and increase sales to existing customers[183] - The company aims to continue investing in partnerships and alliances to expand its market reach and drive brand awareness[186] Financial Performance and Revenue Growth - Total revenue increased by 31% to $196.0 million for the three months ended October 31, 2024, and by 32% to $547.8 million for the nine months ended October 31, 2024, driven by demand for the DevSecOps Platform and customer expansion[222] - Subscription revenue (self-managed and SaaS) grew by 34% to $175.3 million for the three months ended October 31, 2024, and by 34% to $489.6 million for the nine months ended October 31, 2024[222] - License revenue (self-managed and other) increased by 11% to $20.8 million for the three months ended October 31, 2024, and by 12% to $58.2 million for the nine months ended October 31, 2024[222] - Net income attributable to GitLab was $29.6 million for the three months ended October 31, 2024, compared to a net loss of $285.2 million for the same period in 2023[217] - Revenue attributed to the variable interest entity, JiHu, was $1.9 million for the three months ended October 31, 2024, and $5.3 million for the nine months ended October 31, 2024[223] Expenses and Cost Management - Sales and marketing expenses increased to $95.3 million for the three months ended October 31, 2024, and to $285.5 million for the nine months ended October 31, 2024, but decreased as a percentage of total revenue to 49% and 52%, respectively[217][220] - Research and development expenses rose to $61.4 million for the three months ended October 31, 2024, and to $176.8 million for the nine months ended October 31, 2024, but decreased as a percentage of total revenue to 31% and 32%, respectively[217][220] - General and administrative expenses increased to $46.0 million for the three months ended October 31, 2024, and to $146.6 million for the nine months ended October 31, 2024, but decreased as a percentage of total revenue to 23% and 27%, respectively[217][220] - Cost of revenue increased by $7.0 million (47%) to $22.1 million for the three months ended October 31, 2024, driven by higher SaaS and cloud usage costs, amortization of intangible assets, and personnel-related expenses[224] - Sales and marketing expenses increased by $8.4 million (10%) to $95.3 million for the three months ended October 31, 2024, primarily due to higher personnel-related costs[228] - Research and development expenses increased by $12.3 million (25%) to $61.4 million for the three months ended October 31, 2024, driven by higher personnel-related costs and hosting expenses[232] - General and administrative expenses increased by $7.1 million (18%) to $46.0 million for the three months ended October 31, 2024, primarily due to higher personnel-related costs and stock-based compensation[235] - Stock-based compensation expense increased by $6.7 million (16%) to $48.0 million for the three months ended October 31, 2024, mainly due to higher RSU expenses[241] - Cost of revenue attributed to JiHu was $0.5 million for the three months ended October 31, 2024, compared to $0.8 million in the same period in 2023[227] - Sales and marketing expenses attributed to JiHu were $1.8 million for the three months ended October 31, 2024, compared to $1.6 million in the same period in 2023[230] - Research and development expenses attributed to JiHu were $0.6 million for the three months ended October 31, 2024, compared to $1.5 million in the same period in 2023[234] - General and administrative expenses attributed to JiHu were $1.6 million for the three months ended October 31, 2024, compared to $1.0 million in the same period in 2023[238] Product and Platform Efficiency - GitLab's DevSecOps Platform reduces software development cycle times by up to 7x, from weeks to minutes[172] - Nearly 700 contributors added over 2,100 merge requests to the core product in 2023, enhancing R&D efforts[175] - GitLab plans to increase R&D expenses, which may impact short-term profitability but drive long-term growth[180] Gross Margin and Profitability - Gross margin decreased by 1% to 89% for the three months ended October 31, 2024, compared to 90% in the same period in 2023[224] - GitLab's SaaS offering is expected to increase cloud-related costs, potentially impacting gross margins[202] Cash Flow and Liquidity - Cash and cash equivalents totaled $0.9 billion as of October 31, 2024, compared to $1.0 billion as of January 31, 2024[259] - Net cash used in operating activities was $127.2 million for the nine months ended October 31, 2024, compared to $10.2 million provided in the same period in 2023[262] - Cash used in investing activities was $8.6 million for the nine months ended October 31, 2024, compared to $50.5 million in the same period in 2023[262] - Cash provided by financing activities was $20.9 million for the nine months ended October 31, 2024, compared to $30.2 million in the same period in 2023[262] - Adjusted free cash flow is a non-GAAP measure used to assess liquidity, calculated as net cash from operating activities less property and equipment purchases plus non-recurring BAPA tax payments[271] - Adjusted free cash flow for 2024 was $9.65 million, compared to a negative $6.697 million in 2023[272] - GAAP net cash used in operating activities for 2024 was $(177.028) million, compared to $(5.961) million in 2023[272] - Income tax payments related to BAPA added $187.735 million to adjusted free cash flow in 2024[272] - As of October 31, 2024, the company had $0.9 billion in cash, cash equivalents, and short-term investments[280] - A 1% change in interest rates would result in a $4.2 million change in the fair value of the investment portfolio[280] - The company has $57.4 million in cash and cash equivalents denominated in currencies other than the U.S. dollar[282] - A 10% change in foreign currency exchange rates would have a material impact on the financial statements[282] Tax and Other Financial Metrics - The effective tax rate increased by 1244.3% for the three months ended October 31, 2024, primarily due to tax effects of BAPA negotiations[249] - Unrecognized tax benefits decreased to $9.9 million as of October 31, 2024, from $396.8 million as of January 31, 2024, due to BAPA settlement[256] - Interest income increased to $12.6 million for the three months ended October 31, 2024, up 16% from $10.9 million in the same period in 2023[245] - Total other income (expense), net increased to $4.99 million for the three months ended October 31, 2024, up 777% from $569,000 in the same period in 2023[245] - The company recorded an impairment charge of $8.9 million in other income (expense), net, reducing the equity method investment value to zero as of January 31, 2024[247] Internal Controls and Financial Reporting - A material weakness in internal control over financial reporting was identified as of October 31, 2024[286] - The material weakness relates to ineffective IT general controls for revenue-related financial reporting systems[287] - Remediation efforts include strengthening IT governance and enhancing user access controls[289] - The company's unaudited condensed consolidated financial statements for the periods presented are in conformity with U.S. GAAP, despite a material weakness in internal control over financial reporting[288] - The company implemented remediation actions in Q3 FY2025 to address the material weakness, including strengthening IT governance and developing training programs on internal controls[289] - The company believes the remediation actions, once fully tested, will be sufficient to address the material weakness, but effectiveness cannot be guaranteed[291] - No other changes in internal control over financial reporting were identified during the quarter ended October 31, 2024, apart from the material weakness and remediation efforts[292] - The company's internal controls over financial reporting are designed to provide reasonable assurance but cannot prevent or detect all errors and fraud[293]

Core Viewpoint - GitLab Inc. reported quarterly earnings of $0.23 per share, exceeding the Zacks Consensus Estimate of $0.16 per share, marking a 43.75% earnings surprise compared to $0.09 per share a year ago [1][2]. Financial Performance - The company achieved revenues of $196.05 million for the quarter ended October 2024, surpassing the Zacks Consensus Estimate by 4.46% and showing an increase from $149.67 million year-over-year [2]. - Over the last four quarters, GitLab has consistently surpassed consensus EPS estimates and revenue estimates [2]. Stock Performance - GitLab shares have increased approximately 5.7% since the beginning of the year, while the S&P 500 has gained 27.6% [4]. - The current Zacks Rank for GitLab is 3 (Hold), indicating expected performance in line with the market in the near future [7]. Earnings Outlook - The consensus EPS estimate for the upcoming quarter is $0.14 on revenues of $204 million, and for the current fiscal year, it is $0.46 on revenues of $743.41 million [8]. - The trend of estimate revisions for GitLab is currently mixed, which may change following the recent earnings report [7]. Industry Context - The Internet - Software industry, to which GitLab belongs, is currently ranked in the top 16% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [9].