GitLab downgraded at Piper Sandler as guidance clouds outlook; stock dips

Investing.com -- Piper Sandler on Wednesday downgraded GitLab to Neutral from Overweight, citing lingering uncertainty around its growth outlook after the software company issued weak guidance for fiscal 2027 (F27).

The brokerage also slashed its price target to $28 from $55.

GitLab shares fell around 8% in premarket trading.

Piper Sandler analysts said the downgrade reflects concerns that the company’s near-term fundamentals may remain pressured as management prioritizes stabilization and increased spending.

“While the modest valuation… and the appearance of a meaningfully de-risked guidance did weigh on our thought process to remain more constructive, the messaging around F’27 being a year of finding stabilization while leaning in on increased sales expenses… will likely create a show me situation for at least the next few quarters,” the analysts led by Rob Owens wrote.

GitLab reported fourth-quarter revenue of about $260 million, up 23% year over year, while operating margin reached roughly 20.5%. Piper described the results as “a solid, but not spectacular quarterly result,” noting positives including record net new annual recurring revenue (NNARR), the lowest churn in over four years and early momentum around the company’s Duo Agent Platform.

However, the analysts said management’s outlook disappointed investors. GitLab’s fiscal 2027 revenue guidance implies around 16% growth, below expectations of roughly 19%. The company also projected operating margins near 12%, representing about 500 basis points of year-over-year compression due to gross margin pressure and higher investments.

According to Piper Sandler, the company is positioning fiscal 2027 as a year focused on stabilization and execution, including expanding sales capacity and advancing its AI strategy. The analysts cautioned that these initiatives may take time to translate into improved financial performance.

“Given these dynamics, we expect that the narrative on fundamentals will remain challenged over the coming two to three quarters,” they said, adding that decelerating growth, developer seat concerns and competition risks could continue to weigh on sentiment.

"Although we see guidance as de-risked for F’27 and acknowledge the modest valuation, we believe it will take a meaningful acceleration in growth for investors to fully return to the story, something that is more likely to happen at the end of F’27 or F’28, in our view," the analysts wrote.

They believe there is “clearly a large opportunity at hand with AI,” but added that the benefits “will take time to play out.”

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