DevOps platform provider GitLab Inc. (NASDAQ: GTLB) is a silent runner in the stock exchange ever since its IPO last year. Jaguar, Land Rover, and Nasdaq (NDAQ) are among its high-profile customers who leverage GitLab’s software solutions for their businesses.
The company’s first quarterly report after going public was Q3 of Fiscal 2022, where it reported 58% year-over-year revenue growth primarily supported by a widening customer base. However, looking ahead, sentiments are lukewarm around GitLab’s Q4 results, which are expected to be released after the market closes on Monday.
The Concerns Looming Over Q4
In its last earnings call, management hinted at a slight deceleration in revenue growth for Q4 due to seasonality. Particularly, GitLab has a chunk of its business coming linked to government organizations. Now, Q3 was the strongest quarter for the public sector, making Q4 a comparatively slow one. This could indicate that GitLab’s business performance is likely to be a little lighter quarter-over-quarter.
Moreover, GitLab is likely to have ramped up its hiring in Q4 and increased its headcount to support long-term growth. This is expected to have resulted in increased expenses and weighed on quarterly margins.
Also, billings growth is expected to be choppy for some time, as directed by the management in GitLab’s last earnings call. This is probably contributing to the 9.74% drop in the share prices at market close on Friday, one business day before the earnings release.
Why We See an Upside Beyond Q4
Nonetheless, last month, RBC Capital analyst Matthew Hedberg upgraded GitLab to a Buy from Hold with a bullish price target of $90. He sees the company favorably positioned to benefit from the DevSecOps market, whose value is roughly $40 billion currently. This is because the biggest competitive advantage of GitLab’s platform is its ability to allow its customers to develop and deploy secure applications at an unusually fast pace.
Not only is Hedberg bullish on the GitLab stock ahead of its Q4 earnings release, but also is JPMorgan analyst Sterling Auty, who upgraded the stock to a Buy, naming it a “Growth All-Star.” Auty envisions a strong market for software stocks in the near future. He expects software stocks to beat revenue estimates after the current bear market ends, and foresees GitLab to be one of the companies that stand to benefit most from this boom.
Something to Look Forward to for Q4
In March, ahead of the earnings release, there have been 3 Buy transactions by 3 insiders, which is encouraging.
In fact, American investor Cathie Wood added GitLab to her portfolio in the fourth quarter of the calendar year 2021, which clashes with GitLab’s Fiscal fourth-quarter by 2 months. This allows us to look at two possibilities: either the company is poised for growth in future, or it has done something right in Q4.
As for the company, management guided revenue to a possible 51%-53% year-over-year growth in Q4.
Wall Street’s Take
The Wall Street analyst rating consensus is definitively bullish on GitLab, with a Strong Buy rating based on 4 unanimous Buys. The average GTLB price target is $91, representing a possible 12-month upside of 189.81% as of 12:08pm Monday EST.
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