Folks, from investment thesis perspective the case is not complicated.
Firstly, Gitlab is going after basically “greenfield” business. The main target is Do-It-Yourself DevOps/DevSecOps tools which are obviously inferior to modern tools. In the next few years there will be rapid adoption of either Gitlab or Github platform for many many companies around the world. Here is a good quote from CEO on this point:
"Sid Sijbrandij
Yeah. Thanks for that. We believe that we’re very early in a big market opportunity. Us and our biggest competitor together, we’re less than 5% of a $40 billion market . Gartner said that DevOps platform adoption is 20% now, growing to 60% over a couple of years. And if anything, the need to consolidate, the need to have fewer tools, less integration efforts is only accelerating . Companies can’t afford anymore to spend and solve everything by hiring more people. So, the macroeconomic challenges that company faces only makes it more of an imperative to consolidate, to go to the cloud faster and to embrace platforms like GitLab."
Looks like Gitlab is in a good place on an S-curve in own market and figures from last several quarterly reports support that.
More thoughts on competition vs Microsoft. Crowdstrike has been competing against Microsoft for many years. Microsoft is still the main competitor - especially now, when consolidation of variety of different tools to platforms is ongoing. Nevertheless, both Crowdstrike and Microsoft security business (and other newer generation security businesses) have been growing like crazy. Why? Because they have been replacing legacy tools and the market itself has been growing.
For me it seems highly likely that Gitlab and Github both will be showing very strong growth in the future as they will be eating into this greenfield/DYI business environment because these two are clearly the best tools in this specific segment.
Secondly, it’s pretty much the fact that many companies will prefer to have an independent and vendor agnostic platform like Gitlab vs Microsoft which will definitely be pushing own cloud and other products. So, AWS and GCP environments will be trending more toward Gitlab and not Github. Already now they are cross-selling via GCP and AWS platforms a lot of deals - here is what they said on the last call:
"Brian Robins
Yeah. I would just say that the – on the billing, we had two invoices, one that’s been collected, one that we’ll get any day now. So that’s on the billing that you’ve seen sort of the DSOs tick up a little. And I would just say for the quarter, there wasn’t really anything outside in the quarter that happened that has happened in other quarters. And so, we landed a – we had a record quarter as well with AWS and GCP contribution. And so, once again, another large quarter – the largest quarter in company history of what they contributed as well ."
Me here: Sounds very similar to DDOG, ZS, SNOW and other our names selling via hyperscaler’s marketplaces
"Sid Sijbrandij
Thanks so much. I’ll go first and let Brian add. The most important partnerships for us are the ones with the hyperclouds. And they’re important for us because more and more of the purchasing is happening by these hyperclouds. They’re influential in accounts. They have access to the important C-level people.
We are important to AWS, GCP. We mentioned we won a GCP award because they know if GitLab is in the account, they move to the cloud faster. The fastest way to do the cloud migration is to first get on one platform and then move, not to try to move 10 different point solutions at different speeds. That is way more hassle. So, it’s a partnership that’s very symbiotic . And we’re super excited about the additional opportunities that are in partnering with hyperclouds like that and big partners like IBM that we love to work with."
To me it seems that AWS and GCP is pushing their clients - when such tool is needed - to Gitlab and definitely not to Microsoft product.
To sum-up - the bull thesis looks strong here and competition with Microsoft does not look as a material problem to growth. The numbers from last 3 quarters support the bull thesis.
Long GTLB 10%