GitLab Q1 FY 2023 Results

Investment Analysis Clubs Saul’s Investing Discussions
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Gitlab isn’t covered much on this board but I think it deserves following.
Results for the quarter showed accelerated revenue (75% growth vs 69%), meaningful progress on Operating Margin was achieved (improving 1700 basis points) and they delivered a beat and raise. RPO growth was outstanding at 92% and GM sits at 90% (up from 87% YoY). Customer #s grew nicely as well. Only issue was NRR dropping from 152% to “above 130%”.

Headlines:-
Q1 Non-GAAP EPS of -$0.18 beats by $0.08.
Revenue of $87.41M (+75.1% Y/Y) beats by $9.28M.
GAAP operating margin of (49)%; Non-GAAP operating margin of (28)%.
“Metrics in the first quarter were strong: 75% year-over-year revenue growth, dollar-based net retention above 130%, 92% year-over-year RPO growth, 90% non-GAAP gross margins, non-GAAP operating margin improvement of 1,700 basis points year-over-year and we saw great growth in all the customer segments despite the macro-environment. We remain committed to responsible growth.” said Brian Robins, GitLab CFO.

Report:-
https://seekingalpha.com/pr/18822313-gitlab-reports-first-qu…
or
https://ir.gitlab.com/news-releases/news-release-details/git…

Wall St seems to like the results - SP is up 10% AH.

Having previously been a follower and holder of GitHub until the Microsoft buy out I am pretty interested in GitLab as it seeks to become the de facto dev-ops software development platform. It managed to attract a lot of defection from Microsoft once it got its hands on GitHub. It remains to be seen whether GitLab can become stickier than GitHub and whether it can fight off the competition which come in different forms.

Ant

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Oh and here’s the Earnings Call transcript…

https://seekingalpha.com/article/4516759-gitlab-inc-gtlb-ceo…

It seems that 5% of the revenue growth acceleration was from accounting changes but other than that the call seems positive.

Ant

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I’m long GitLab — I’m not too concerned w/competition from GitHub. Even if GH is #1 in the market, there’s plenty of room for GitLab to grow a ton while being #2. Massive market opportunity

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I’m also a Gitlab shareholder and definitely think it deserves consideration from the ppl on this board. Worth noting that Google has been purchasing shares of GTLB on the open market this month and it has long been rumored that Google may be interested in owning GTLB outright.

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The good
(1) Revenue beat of 12% (higher than last quarter’s 10% beat). Growing from 58% (Q3’21) → 69% (Q4’21) → 75% (Q1’22). As always, take predictions with a grain of salt, but anything above an 8% beat would continue the trend of accelerating revenue. A similar beat to the last two quarters could nudge growth to the 80%’s

(2) Raising guidance by 2.9% suggest pipeline isn’t slowing / confidence in the business. Guidance also improved for operating losses

(3) Leading indicators of growth very positive (92% RPO growth, 68% enterprise customer growth, 130%+ DBNR)

(4) Highlighted a commitment responsible to responsible growth; reflected by Non-GAAP OpMargin reducing from -47% to -30%

(5) Strong customer adoption stories (domestic & international) and examples of rapid product innovation (particularly for security, compliance, and portfolio management)

The not-so-good
(1) Although the trending the right direction, OpEx (non-GAAP) still exceeds revenue (119%, compared to 133% this time last year)
(2) Broke the 7-quarter-long trend of declining S&M as % of Revenue (from 67% last quarter to 68% this quarter…minor but worth noting)

Notable quotes from the conference call:
Competition
-Microsoft accounts for <20% of the deals that we’re in…win rate almost identical
-Really happy with AWS and GCP since we’re sort of a Switzerland and aren’t aligned with any specific cloud provider Note that Azure wasn’t mentioned here due to the tough competition with Microsoft

Profitability
-If we exclude our JV, we had almost identical non-GAAP OpIncome this quarter versus the same quarter last year, and we grew revenue 75%, which basically added $38M of revenue to the same absolute profitability. As we said before, we remain committed to responsible growth

Demand for Ultimate (premium tier)
-For Ultimate, the main driver is security. We more and more view ourselves not just as a DevOps company, but a DevSecOps company
-Representing 39% of ARR compared to 26% this quarter last year

On recession / inflation fears
-Our pipeline in Europe is stronger than it’s ever been
-Today, C-suite is coming to us wanting to consolidate into the best platform out there, so that helps us. I think it was first that realized this, then our competitors, and now analysts are seeing the traction with our customers

In summary, I see a mighty little company ($6B market cap) loved by developers doing all of the right things to scale without being too reckless - without any indications of headwinds of challenges ahead on the call. At roughly 14x NTM/Revenue with cash flow heading the right direction, the risk / reward seems appealing to me…but what do I know!

-RMTZP
Apologies for my lack of engagement lately. The past few months have been a brutal learning experience where I have felt at Dunning-Kruger’s valley of despair. I will continue trying to climb out of it with help from this great community

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I see that GitLab competes in the same space as GitHub, which is much larger and should therefore benefit from network effects. However, focus on product development on their core market should give GitLab an edge over time, as well as not being tied to one cloud service, and should benefit multi-cloud companies, which most companies are. They also compete with Bitbucket which is owned by Atlassian. Bitbucket should also share this advantage of not being aligned with a single cloud vendor. GitLab is also open sourced where the other two are not. Would someone be able to describe the main differences between these three companies, and how Gitlab could possibly overcome being in GitHub’s shadow? It does seem to be doing just that.

https://kinsta.com/blog/gitlab-vs-github/#why-is-github-more…
From this article:
One of the main reasons GitHub is more popular than GitLab is that GitHub had a head start. It launched in 2008, while GitLab started as an open source project in 2011.

But with built-in continuous integration features, and a free option for private, self-hosted servers, GitLab is starting to catch up. According to one survey, GitLab gained a 4.6% market share from 2018–19, while GitHub dropped by 0.4%.

But even so, in the latest 2020 Stack Overflow developer survey, 82.8% of respondents say they use GitHub, and only 37% say they use GitLab.

Would be interesting to see more recent stats to see if GitLab can actually continue this momentum.

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I am a user of Git and GitLab for the last three year. Here is my short take on the product and the business:

  1. Git main theme is version control mainly for software development. It is the standard de facto of the software industry. It’s interface and its behavior is well defined and was initially developed by Linus Torvalds the same guy that developed Linux the most popular Operating System right now.

  2. Git is open software.

  3. The part that GitLab supplies in the server side where the software versions are pushed and pulled from.

  4. It supplies convenient tools to collaborate during the development, most importantly code reviews.

  5. GitLab also supplies project management feature.

What is the moat (secret sauce) of GitLab?
As far as I can try to think about it there is not much. As long as the git works as expected (and this is well defined) the client (both the company using it as well the software developers) doesn’t really care.
For all I know they can use GitHub I will be fine that.
It doesn’t look to me that the Code Review feature and the project management is something that is hard to replicate.
About a switch moat…
A company is not likely to be willing to move from GitLab to GitHub for instance… But if Gitlab raises its prices too high the switching is probably going to be smooth. As I said the interface is well defined (I am using the CLI (terminal interface) and anyone that considers himself a serious software developer is doing the same.)

Summary and takeout:
Git in general and among it Gitlab is an essential tool for software development. (And thanks to Linus he has done tremendous job in creating truly full distributed version control system that scales really well).
It is based on Open Source well defined interface.
As far as I can tell, there is no moat to Gitlab…
Given the above, I will not invest in them no matter how quick the growth is.
Correct me if I am wrong.

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