GitLab leaps 35% after NASDAQ IPO

By Duncan Ferris

Oct 15, 2021

Newly listed GitLab stock climbed by 35% on its first day of trading, outperforming the company’s expectations.

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Newly listed GitLab stock climbed by 35% on its first day of trading, outperforming the company’s expectations. The stock’s price stood at $103.89 at the close of trading, well ahead of GitLab’s previously stated target of $66 to $69 per share. The company consequently raised around $650m.

The software development company started trading on the NASDAQ on Thursday under the ticker GTLB.

What is GitLab?

The company was founded in 2014 by current CEO, Sid Sijbrandij, and developers Dmytro Zaporozhets and Valery Sizov. Zaporozhets began developing GitLab in his house in Ukraine before beginning to collaborate with Sizov on the project shortly afterwards.

This small operation has grown into a company with around 1,350 team members in over 65 countries. This workforce has been fully remote since inception, giving GitLab access to a global pool of talent.

The company’s product is The DevOps Platform, which is used by software companies. The platform is single application which aims to bring together development, operations, IT, security, and business teams. This is intended to allow teams to collaborate and work together to shorten the software development lifecycle and evolve from delivering software on a slow, periodic basis to rapid, continuous updates.

The company and software have an emphasis on contribution. Users of the GitLab’s software can contribute to its makeup and the company seeks to promote knowledge sharing through publishing its handbook of over 2,000 webpages, which details how it operates.

How does GitLab make money?

The product was originally free and open source. The web-based software can still be used for free, though some features are locked behind a tiered subscription system. The DevOps Platform is now used by more than 100,000 organisations and has a community of over 2,500 code contributors.

In GitLab’s most recent annual results, which covered the 12-month period ended 31 January 2021, it posted revenues of $152.2m. This was 87% higher than the $81.2m achieved in the prior year. Revenue growth appears to have continued into the current year, with first half revenue showing 69% year on year growth to come in at $108.1m. Its revenue retention rate is also impressive, having climbed to 152% in July.

However, despite returning gross profits of $133.7m in its last full year, the business is running at a loss. Its net loss stood at $192.2m for the year ended 31 January 2021, 47% wider than the year before. This was driven by higher costs from sales and marketing, research and development, and administration.

Growth prospects

Looking ahead, the company has signalled its intent to make significant investments in sales and marketing, research and development, and its partner ecosystem to drive growth.

Key focuses of this strategy include the acquisition of new customers. GitLab said it expected “nearly all” organisations to modernise from in-house DIY DevOps tools to DevOps platforms, broadening the pool of potential customers it can draw from. The company seeks to exploit this modernisation by tasking its sales and marketing teams to focus on replacing DIY DevOps within larger organizations.

GitLab will also continue to focus on acquiring users with its free offering. These users can then be converted to paying customers, with the company placing a special focus on improving the self-service purchasing experience.

Additionally, the company also outlined its intention to grow adoption of its software as a service (SaaS) offering and expand its global footprint. The company’s international revenue grew from $13.4m in 2020 to $26.2m in 2021, an increase of 95%. It intends to accelerate this growth by increasing investment in international sales and marketing operations, including increasing headcount in the EMEA and APAC regions.

In its IPO filing, the company noted that the total addressable market for Global Infrastructure Software is estimated to reach $328bn by the end of 2021 and $458bn by the end of 2024. GitLab said it believed it could serve $43bn of this market by the end of 2021 and $55bn by the end of 2024.

It is worth noting that the company has some high profile competitors. Microsoft’s (NASDAQ: MSFT) GitHub and Atlassian’s (NASDAQ: TEAM) Bitbucket are major and established players in the sector. Whether GitLab can hold its own against such high profile competition remains to be seen.

Is GitLab a good investment?

It is easy to see why GitLab stock is so in demand. The prospect of getting on board with such a rapidly growing software company is enticing. GitLab’s business model of teasing customers in with a free offering is smart and its fully remote and international workforce give it good resistance to regional issues and a strong platform for expansion.

However, there are risks associated with the investment. GitLab has openly acknowledged that its recent rapid growth might not be maintained. It explained that its lack of history to draw from regarding its subscription and pricing models meant it was challenging to predict long-term rates of customers renewals or adoption.

Additionally, the company noted that it has a history of losses, anticipates increases in its operating expenses in the future, and may not achieve or sustain profitability on a consistent basis. The company added that this could lead to its stock performing inconsistently.

Important Notice And Disclaimer

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.