Look, I understand that in this environment it is very difficult to predict. However, I’ve pointed out before that since Q2, some of Gitlab’s narrative didn’t match their numbers. Three subsequent quarters with this degree of divergence is alarming. Mind you, they’re a subscription model – so they’re not facing the added uncertainty from usage.
There are way too many red flags to ignore. I feel very foolish for giving them the benefit of the doubt. But feelings aside, here are some pieces that I found particularly disturbing.
From Q3: “We would like to provide an update on FY24 revenue growth. Based on everything we know today, we are currently comfortable with the street estimates, which have us growing revenue over 40%.” And later, “I would just say that we’re early in our FY 2024 planning as we look at it. I’m super happy that we have such a predictable business model”
Q4 Actual Guidance: 26% (at the high-end). Note that it would have been in the TEENS if it wasn’t for the price increase of their Premium tier. I’m sorry, as fast as things can change in a few months, how can this be justified?!
From Q3 (keep in mind the report >1month into Q4): “We aren’t seeing the sales cycle elongate; that actually shrank again this quarter”
Q4 Actual: The last time their small customer adds (>$5k ARR) was this low was 6 quarters ago
Q4: “Our Ultimate tier performed well in the quarter”
Q4 Ultimate Actual Performance: Revenue contribution from Ultimate dropped from 140% YoY Q4’22 to 71% YoY Q4’23 (first time it drops <100%)
Q4: “In the fourth quarter up until our earnings, the dollar-based net retention rate was greater than 145%”
Q4 Actual Reported: 133%. They reported earnings on December 5th. So if I understand this correctly:
- DBNRR Month 1 (Nov): “greater than 145%” → let’s assume 146%
- DBNRR Reported in Q4: 133%
- Therefore, we can imply that that the average of December and January was 126%?!
It seems that the layoffs and prices rises they did were desperation moves to “window dress” what would have been an even worse report. Adding the concerns that I’ve highlighted before, I have fully lost confidence in management. That said, I truly wish Sid well, as he indicated that he’s undergoing chemotherapy.