Software development tools maker GitLab (NASDAQ:GTLB) beat Wall Street’s revenue expectations in Q3 CY2024, with sales up 31% year on year to $196 million. The company expects next quarter’s revenue to be around $205.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.23 per share was 44.4% above analysts’ consensus estimates.
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GitLab (GTLB) Q3 CY2024 Highlights:
- Revenue: $196 million vs analyst estimates of $188.3 million (31% year-on-year growth, 4.1% beat)
- Adjusted EPS: $0.23 vs analyst estimates of $0.16 (44.4% beat)
- Adjusted Operating Income: $25.91 million vs analyst estimates of $20.29 million (13.2% margin, 27.7% beat)
- Revenue Guidance for Q4 CY2024 is $205.5 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted Operating Profit Guidance for Q4 CY2024 is $28.5 million at the midpoint, above the $25.9 million analysts were expecting
- Management raised its full-year Revenue, Adjusted Operating Profit, and Adjusted EPS guidance
- Operating Margin: -14.7%, up from -26.9% in the same quarter last year
- Free Cash Flow was -$178.1 million, down from $10.85 million in the previous quarter
- Net Revenue Retention Rate: 124%, down from 126% in the previous quarter
- Market Capitalization: $10.68 billion
“GitLab’s growth at scale is a testament to the demand for a platform approach to software development,” said Sid Sijbrandij, co-founder and executive chair of the board of directors,
Company Overview
Founded as an open-source project in 2011, GitLab (NASDAQ:GTLB) is a leading software development tools platform.
Developer Operations
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.
Sales Growth
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, GitLab’s sales grew at an incredible 47.7% compounded annual growth rate over the last three years. 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 wonderful year-on-year revenue growth of 31%, and its $196 million of revenue exceeded Wall Street’s estimates by 4.1%. Company management is currently guiding for a 25.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 23% over the next 12 months, a deceleration versus the last three years. Still, this projection is healthy and suggests the market is baking in success for its products and services.
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Customer Retention
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 127% in Q3. This means GitLab would’ve grown its revenue by 27.2% even if it didn’t win any new customers over the last 12 months.
GitLab has an excellent net retention rate. This data point proves that the company sells useful products, and we can see that its customers are satisfied and increasing their usage over time.
Key Takeaways from GitLab’s Q3 Results
Revenue and adjusted operating profit beat in the quarter, which is only the start of the good news. We were also impressed by GitLab’s optimistic adjusted operating profit guidance for next quarter, which beat analysts’ expectations despite an in line revenue guide. We were also glad its full-year adjusted operating profit guidance came in much higher than Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 6.9% to $70.60 immediately after reporting.
Sure, GitLab had a solid quarter, but if we look at the bigger picture, is this stock a buy? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.