Wolfe Research Upgrades GitLab Inc (GTLB) to Outperform, 'You Had Me at Conservative'
Wolfe Research analyst Allan Verkhovski upgraded GitLab Inc (NASDAQ: GTLB) from Peerperform to Outperform with a price target of $75.00.
The analyst comments "Following today's 21% drop in shares (vs. IGV -3.8%) as GTLB said its guidance (FY25 revenue implying 26% growth was 0.3% below street) is less conservative, GTLB is up ~15% (vs. IGV +21%) since our launch last June. Going forward, we see a story of being one of the fastest growers in software this year with multiple product catalysts (GitLab Dedicated, AI features, Agile Planning) and significant upside being driven from pricing (we believe guidance of $10M-$20M in incremental revenue is very conservative). The best part is now you can have all this at a relative discount (9% vs. peers on base case estimates) instead of a premium, making the risk reward attractive. During our callback (see notes on page 2), management talked to contracting beat magnitudes below their average beat of ~6.5%, which is expected for a company over time in an uncertain macro environment. That said, we are encouraged that in comparing FQ4 with FQ3, GTLB saw improved buying behavior across all customer sizes, in particular with Enterprise customers exceeding expectations, and churn and contraction improved for the fourth consecutive quarter. GTLB had a record quarter in FQ4 for net customers >$100K ARR additions and finished FY24 with 96 customers >$1M ARR (vs. 63/39 in FY23/FY22). As detailed further on pages 2 and 3, forward-looking indicators were strong, and we highlight F4Q24 cRPO bookings of $222M (+46% Y/Y vs. 32%/20% in F3Q/F2Q) has us excited for the F1Q25 setup which will likely be the next catalyst for shares. GitLab Duo Pro is GA for $19 per user per month, and management noted several adopters including a major telco in Asia buying thousands of Duo licenses in addition to T-Mobile looking forward to leveraging Duo. With leading gross margins of 92% and OpEx growth of ~10% driving 8% NG Operating Margins and 15% FCF margins in F4Q24, we also see a reasonable FCF multiple in CY26. We upgrade GTLB to OP with a $75 PT or 13x (11x on upside) CY25 EV/ Sales."
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Shares of GitLab Inc closed at $58.84 yesterday.