You can find their investor presentation here
Idea highlights
Software is eating the world (but does that mean users will chow down on Gitlab?)
Strong top line growth and increasing user count has not lead to any earnings.
Large addressable market and switch to streamline DevOps could provide long runway for Gitlab to take off.
Above the $60.00 pivot I like it. Below it, not so much.
What is Gitlab?
“GitLab Inc. is the provider of The One DevOps Platform, a single open source application enabling organizations to deliver better and safer software faster. GitLab's mission is "everyone can contribute;" as users become contributors we greatly increase the rate of innovation together. Founded in 2014 by CEO Sid Sijbrandij and engineering fellow Dmitriy Zaporozhets, GitLab has an estimated 30 million users and more than 1 million active license users worldwide. GitLab is also a pioneer in remote work and employs over 1,700 people in over 65 countries.”- Taken from website.
Gitlab looks interesting. A fully remote workforce putting up some compelling numbers, although they are not profitable yet. No earnings could be a big problem for companies looking for serious buyers in the stock market.
75% year over year run rate for revenue growth is attractive. Their gross margins are not too shabby either, standing at 90%. But what I wanted to look at more was the next slide.
So there is a lot to unpack in this slide. I am not a tech guy, so lets wade through this together. Multiple point solutions, regarding software development, means using different tools/programs, or “points” to create your desired software. This slide is implying that in 2021, 80% of organizations engaged in software development still use multiple point solutions to build their software. This can be cumbersome, expensive, and time consuming. Enter the streamline delivery option, or DevOps. The above slide implies that by 2024 60% of organizations will have made the switch, well above the 20% using it in 2021.
Below is a slide outlining DevOps it from Gitlab
Simply, it allows users and organizations to develop software within a single point solution. They don’t need to access different platforms or tools for security needs or to monitor the release. It is all done withing the DevOps ecosystem by Gitlab.
As you can see, the DevOps platform allows a single point solution from managing to planning, creating and verifying, packaging, release, configure, monitor and protect.
Interesting stuff… but is it causing growth?
Fundamentals
75% year over year revenue growth is impressive. They are guiding slightly lower in the 60% or so range moving forward but that is still not bad.
Consistent increase in their base customers (those with $5,000 or more in ARR) and solid increases in their large customers as well - around 68% year over year.
Although the earnings are not there (again, not my ideal cup of tea) the revenue growth and customer increase is.
To the Charts!
Lets look at the weekly first.
After the IPO, GTLB put in a couple strong weeks, then fell considerably lower (as did almost every IPO that came public at this time). The last couple months are starting to look different. There are notable weeks with increased volume, suggesting accumulation while the overall pattern looks like a cup and handle. Not the cleanest, but does appear to be trying to carve out a bottom here.
The daily is where we can get more surgical.
GTLB is having trouble at the 60 dollar level. This looks to be a very important pivot, one it tested again the day I am writing this. Price has gotten tight the last several weeks as it tested and failed this pivot multiple times. Price has made a series of higher lows and gone sideways the last couple of weeks.
My guess… A breakout above this pivot of 60 combined with a accommodative market and you can see 80 before you blink. I do like that on 8/2 ( the day of this writing ) the overall markets were under pressure but GTLB held strong and closed green. To me, this feels like a beach ball being held under water, waiting for the pressure to be taken off the market so it can bounce higher.
Conclusion:
I do not like the lack of earnings. I am not a big fan of revenue slowing down its growth rate. But I do like the tailwinds of DevOps and software. I do like the chart, assuming we get and stay above 60. And I do think this is one name that should be on your radar.
As always, good luck out there…
Nick Smith