On Wednesday, Wolfe Research adjusted its stance on GitLab Inc (NASDAQ: GTLB), raising the company's stock rating from Peerperform to Outperform and setting a new price target of $75.00. This move comes in response to the company's recent performance and its forward-looking prospects.
The upgrade was prompted by GitLab's announcement that its fiscal year 2025 revenue guidance, which suggests a 26% growth, was slightly below the street's expectations by 0.3%. Despite this, the firm's shares saw an approximate 15% increase since last June, compared to the IGV index's 21% rise.
Wolfe Research pointed to GitLab's potential as one of the fastest-growing companies in the software sector this year, backed by multiple product catalysts and a conservative incremental revenue guidance they believe to be very conservative.
GitLab's management has indicated a contracting beat magnitude below their average beat of around 6.5%, which is considered normal for a company in an uncertain macroeconomic climate. However, the company has shown improved buying behavior, particularly from Enterprise customers, and has reported a decrease in churn and contraction for the fourth consecutive quarter.
In fiscal Q4, GitLab added a record number of net customers with over $100K in annual recurring revenue (ARR) and concluded FY24 with 96 customers exceeding $1M ARR.
The report also highlighted strong forward-looking indicators, such as fiscal Q4 committed remaining performance obligations (cRPO) bookings of $222 million, marking a 46% year-over-year increase. This momentum is expected to be a catalyst for the first quarter of FY25. GitLab's Duo Pro, now generally available at $19 per user per month, has seen adoption by major clients, including a significant telecommunications company in Asia and T-Mobile.
With gross margins at an impressive 92% and operating expenses growing at roughly 10%, which has led to 8% non-GAAP operating margins and 15% free cash flow margins in fiscal Q4, Wolfe Research sees GitLab's free cash flow multiple as reasonable for calendar year 2026. The new price target reflects a 13 times (11 times on the upside) CY25 enterprise value to sales ratio.
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