GitLab Q2 FY2023 Results

Waiting for the presentation and ER call transcript but here’s what we know so far…



Q2 Non-GAAP EPS of -$0.15 beats by $0.08.

Revenue of $101.04M (+73.8% Y/Y) beats by $6.6M.

Non-GAAP operating margin of (27)%.

Customers with more than $5,000 of ARR increased to 5,864, up 61% from Q2 of fiscal year 2022.

Customers with more than $100,000 of ARR increased to 593, up 55% from Q2 of fiscal year 2022.

Dollar-Based Net Retention Rate above 130% in Q2 of fiscal year 2023.

Q3 Guidance: Revenue of $105M to $106M vs. consensus of $103.69M; Non-GAAP operating loss $27.5M to $26.5M; Non-GAAP EPS -$0.16 to -$0.15 vs. consensus -$0.25.

FY Guidance: Revenue of $411M to $414M vs. consensus of $400.80M; Non-GAAP operating loss $111.5M to $108.5M; Non-GAAP EPS -$0.67 to -$0.64 vs. consensus -$0.89.

Overall take:-

Whilst it was a beat and raise across the board and revenue growth was maintained (74% growth vs 75% last quarter)and the guide was a similar magnitude uplift for next quarter as previous the growth in customer numbers was definitely weaker. DBNER was maintained above 130%. Definite progress on the bottom line with visible leverage was achieved.



Brief thoughts on key metrics below, as I haven’t digested the transcript in detail.

Revenue growth of 74% YoY
o Remains strong, but note that this represents their lowest beat (7%) in their brief history as a public company. Might simply be improved accuracy as they mature forecasts.

RPO remains strong at 76% YoY
o Remains strong, but note that the raw $’s added is basically in-line with last quarter. Last year, they added double the RPO sequentially in Q2 compared to Q1. In fact, they added more RPO $’s this quarter last year

Operating expenses (non-gaap) increased 40% YoY
o While still high (107% of revenue), trend remains positive. Down from 133% of revenue this time last year, and 119% last quarter
o Good to see S&M as a percentage of revenue continue its downward trend to 65% (from 73% this time last year)

Operating income (non-gaap) of -$27M
o Good to see OpMargin improve from -30% last quarter to -27%

5,864 base customers (>$5k ARR); 593 enterprise customers (>$100k ARR)
o Largest number added in a single quarter (696)
o Note that enterprise customer growth was lower than this time last year (and even lower than last quarter)

o $414 total revenue (increased by 3%, same as last quarter)
o Operating loss $109 (decreased by ~$20M, same last quarter)

My key open question: If management is so keen that there has been no impact from macro, then why were both land (RPO) and expand (>$100 customers) disappointing?

My take: While this was not a completely knockout quarter, this is a $7B company that is (a) growing its top-line >70% YoY, (b) improving its path towards profitability, and (c) not seeing any impact from the macro environment. If you’re looking for a company that is printing money today, this is definitely not a company for you. But if you’re someone like wsm007 who was looking for a company that meets most of Sentinel’s criteria (below) [1], or someone lamenting the lack of IPO’s this year, then this provides an enticing opportunity at an EV/NTMRev in the mid-teens.

I don’t know of any SaaS company (or elsewhere for that matter - perhaps someone can weigh in if they know of one!), which combines the following:
1. has some scale: run-rate revenue > $300m pa
2. gross margins above 65%
4. guiding for organic next Q revenue growth above 90% (and total revenue growth above 100%.)
5. guiding for full-year revenue growth of ±100%
6. NRR above 130%
7. operating margins improved by >30%pts yoy
8. guiding for operating margins improving a further ±30%pts in the coming year
9. In a market with big tailwinds and which is expected to see limited pullback of spend in the expected coming economic recession




Ok just fyi - the report, transcript and earnings call presentation have been published on the GitLab website…

Investor resource center:-…




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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.



I guess IMO, a company should be exploding at this ~$400m run rate (a tiny tiny fraction of the supposed TAM).

$100k customers the last several quarters:
427 (+44)
492 (+65)
545 (+53)
593 (+48)

I just remember when Datadog was around ~400m run rate and their 100k customers went:
453 (+76)
508 (+55)
594 (+86)
727 (+133)
(This was a year or so prior to COVID, so no WFH tailwinds.)

I know Datadog was special and I can’t expect any company to match what they did, but this isn’t even the right trajectory for Gitlab. It’s just not enough to get me interested at this stage, especially since it’s fairly expensive (the trailing PS ratio is higher than Datadog’s or Crowdstrike’s). Plus with Gitlab there’s the license component and trying to figure out how ASC606 is affecting them (they really should give ARR each quarter). Just not enough bang for the complication. Again, just my opinion.




Your point is well taken, but just because I owned a Ferrari in 2020 doesn’t mean that I wouldn’t want to own a Porsche in 2022. That decision is totally personable of course, and if there’s only room for Ferraris and Lambo’s in your garage – who am I to judge? Perhaps the key difference is that you don’t perceive Gitlab as being a Porsche…

Here’s what I would say regarding the metrics you call out though:

(1) Without dismissing the importance of the land (i.e., customer acquisition), the expand seems to be a more important part of Gitlab’s thesis. We know that (a) NRR remains in the ~150% range, and (b) customers from 7 years ago are still expanding. So, while I noted the slowdown in enterprise customer growth as an amber flag on my post, as long as paying customers keep increasing aggressively, this will not become a red flag for me yet

It’s worth noting that they’re discontinuing their “starter” and “bronze” product offerings over the next month to drive pipeline expansion [1]. This was addressed during the call, “we want to make sure that our free plan is sustainable, so we instituted stores and user limits to help us become more efficient. Some of those users will opt to reduce their usage or leave, and some of them will become a paid customer, and that’s baked into our guidance.” So, the next couple of quarters will be a good test to the elasticity of demand of their product.

(2) If we want to get into the game of comparing Gitlab’s current performance to some of our crown jewels at similar levels of maturity, Gitlab’s RPO is higher than Datadog’s and Cloudflare’s at the same run rate. This exercise can turn into a slippery slope very quickly, and I’m not trying to make the case that Gitlab’s performance today is on par with Datadog’s or Cloudflare’s. But one metric doesn’t tell the whole story.

(3) On the point about the PS ratio being higher than some of our darlings – I’ll reference a previous post outlining how I think of this [2]. Essentially, I imply this higher valuation as market participants “betting” that Gitlab has a higher probability of “surprising” the market than Datadog and Crowdstrike. Others have noted how linear Crowdstrike’s deceleration has been [3] or the alarming conservatism in Datadog’s guidance [4]. So for me, the higher valuation is normal based on the perceived probability that Gitlab can outperform expectations

To summarize, we can make a story as complicated as we want it to be, but I’ll re-iterate that when I see: (a) a sub-$10B market cap, (b) growing its top-line >70%, (c) growing at a faster rate than this time last year, (d) claiming no macro impact, (e) with 75% of RPO commitments, (f) ~90% gross margins, (g) starting to show signs of operating leverage – I can’t help but see an archetype of all of the companies that have yielded so much success to this board over the past few years.