I also liked the quarter. Here are my thought and then notes.
I thought the tone of the call was very strong and confident. They see no (stressed this a couple of times) adverse impact from macro, if anything they are seeing a shortening of sales cycles and bigger landed ASP’s. They spoke a lot about the customer journey, which is land small and expand for many years (all cohorts are still expanding incl cohorts from 7 years ago). Hence the base customer story (up 13% qoq, 61% yoy and 696 in total) is the one to focus on imo. They focus on big customers with years-long expansion which translate into stable and sky-high NRR. They reported NRR as >130% but the commentary made it clear that it was still around the 152% mark. There hasn’t been any revenue growth decay (growth accelerated couple of q’s before and now it’s stable). They had a record contribution from GCP and AWS and this is set to grow further. Gross margins stayed relatively constant in spite of a continued rapid move from the licensed to the SaaS model, op margins improved by 15%pts yoy. SBC is 37% of revs even fairly shortly after IPO, so not crazy.
Two things that bothered me: CTO resigned and no-one asked or spoke about that and op CF deteriorated from -32% to -37% sequentially and -29% last year and there was no comment around that either.
Feels like the guide is lowballing as it’s a bit counter to their commentary; still if they beat by $7m again as they did this q, then they would do say $113m and 69% yoy. I would see that as the floor as that would be a slowdown qoq and in absolute $'s added.
I don’t see anything wrong here and it sounds like a pretty recession-resistant stock.
“This core capability – what’s called DevOps – is a must-have in any macroeconomic environment. Enterprises are navigating economic uncertainty while still needing to embrace the imperatives of digital transformation, cloud migration, and app modernization. Our customers choose GitLab to accomplish more with the people they already have.”
→ Same as last quarter, he is emphasising deflationary impact of Gitlab in the current environment.
“Our differentiation starts with our core value of Iteration, which in turn drives our rapid pace of innovation.”
→ Same as NET the rapid pace of innovation is the key thing he sees as their comp advantage.
“To quantify these benefits, based on a study conducted by Forrester Consulting and commissioned by GitLab, our customers saw a 407% return on investment within three years of deployment of our DevOps platform.”
→ Value to customere: huge ROI.
Another key strength of our go to market value proposition is our relationship with cloud hyperscalers. They view GitLab as an accelerant for customers to move to the cloud faster.
→ He said it last q as well and later commentary showed that it was true.
I also want to thank Eric Johnson, our CTO. He has resigned effective October 1st, and will stay on as an advisor for 6 months.
→ Whaaat? What’s going on here, didn’t see that coming. No mention of succession?
No currency risk/impact: “we price our platform in US dollars, so we have no currency impact.”
NRR continues to be super-strong:
“customer cohorts from 7 years ago are still expanding today.”
NRR consistent with previous quarter; in Q4 last year they said it was higher than 152%. And in the Q&A he said it was “actually consistent with prior quarters”.
→ I read that as them hinting that NRR is still around 152% this Q.
Seeing no macro impact: “Despite the volatility in the macroeconomic environment in the second quarter, we have not seen any impact to our business. Customers increasingly recognize the need to address multi-year digital transformation challenges. The current environment is not slowing down customer decisions, nor elongating our sales cycles. Buying cycles have actually sped up across all the business, and we continue to see strong win rates.”
And later he said again:
“We monitor the key leading indicator metrics of our business and we are not seeing any softening in these indicators.”
He stressed “any” in the call…
There were many questions about macro impact; some of the answers:
“sales cycles are actually compressing this quarter. People are seeing – moving away from the point solutions into a platform”
“The pipeline across the entire company is the strongest it’s ever been. Win rates have been pretty consistent with last quarter and we are not seeing deals being pushed.
Questions relating to customer adds and journey:
“And they start with Premium, they expand division departments. Eventually, they upgrade to Ultimate and so forth. And so, we feel that there’s – despite some of the hiring things, there’s a lot of landed TAM for us to address.
→ Lots and lots of expansion left in all customers and the >$100k customers are still a small part of total, so key thing to watch is new base customers imo.
“The trends that we’ve seen, we’ve seen increasing ASPs across all segments in the business. And so, we haven’t seen – you would expect on some of the reports that people have talked about in the industry that you may see a decline, we haven’t seen that. And so, we’ve seen an uptick across the board and that’s been consistent with all the other quarters.“
Success with Hyperscalers:
"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. 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.
Compare & contrast with MDB who said that they are seeing the macro getting worse:
“We’re a different model. We charge per user per year and we’re seeing that there’s a lot of upside for us still. So, there’s a lot of ways to grow within the companies we’re already at, like we’re nowhere near kind of having all their users and we have a lot of room to grow in uptiering from free to paid, but also from Premium to Ultimate. So, we’re not seeing those consumption headwinds. And in fact, as we talked about before, companies now need to save money, and GitLab is a way to save money and make your existing people more effective to do more despite having a hiring stop.”