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GitLab Stock Surges on First Ever Adjusted Operating Profit

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Andrew R. Michaud

• December 05, 2023

GitLab, a software-development company, experienced a surge in stock after posting its first ever adjusted operating profit. While the company continues to perform well, analysts at D.A. Davidson suggest that a rival software-development company may offer a better opportunity to invest in the growing sector.

Strong Performance Boosts GitLab's Shares

GitLab shares saw a significant increase of 16% in premarket trading on Tuesday, reaching $61.46. This surge came after the company reported its fiscal third-quarter earnings, which exceeded analysts' expectations. GitLab attributed its success to its powerful artificial intelligence capabilities known as the GitLab Duo suite.

Analysts Weigh In on GitLab's Valuation

D.A. Davidson analyst, Gil Luria, raised the target price on GitLab stock from $50 to $60. However, Luria maintained a Neutral rating on the stock due to concerns about its valuation. During an earnings call, GitLab executives revealed that midmarket and smaller business customers were being cautious amidst an uncertain macroeconomic environment. While the demand environment for GitLab seems to be stabilizing, Luria cautioned against elongated sales cycles, which could impact the monetization of GitLab Duo, a crucial catalyst for the company's growth.

JFrog Emerges as a Preferred Alternative

Luria expressed a preference for JFrog, a fellow software-development tools company, at current valuations. JFrog's stock showed a modest increase of 0.6% in after-hours trading on Monday and has risen by 32% this year. The recent strong performance can be attributed to JFrog exceeding expectations for its own third quarter. Luria believes that JFrog will benefit from the uptick in code being written, thanks to new tools like GitLab's Code Suggestions, which enhance developer productivity.

GitLab's Financial Performance

GitLab reported a net loss of $1.84 per share for the fiscal third quarter, but adjusted earnings stood at 9 cents per share. Furthermore, the company witnessed a 32% increase in revenue, reaching $149.7 million compared to the same period last year. Analysts had anticipated an adjusted loss of 1 cent per share on revenue of $141.5 million, according to a FactSet poll.

Looking ahead to the fourth quarter, GitLab projects revenue in the range of $157 million to $158 million, with an expected adjusted profit between 8 and 9 cents per share.