GitLab's Q2 2026 Earnings Call Contradictions: Product & Growth Strategy, AI Integration, and Sales Approach

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 3, 2025

Financials Results

• Revenue: $236M, up 29% YOY
• Gross Margin: 90% (non-GAAP)
• Operating Margin: 16.8% (non-GAAP), up ~682 bps YOY from 10%

Guidance:

• Q3 FY26 revenue expected at $238M–$239M (~23% YOY).
• Q3 non-GAAP operating income of $31M–$32M.
• Q3 non-GAAP EPS of $0.19–$0.20 on ~171M diluted shares.
• FY26 revenue maintained at $936M–$942M (~24% YOY).
• FY26 non-GAAP operating income of $133M–$136M.
• FY26 non-GAAP EPS of $0.82–$0.83 on ~171M diluted shares.
• Holding revenue outlook due to go-to-market changes and SMB softness; raised full-year profit outlook.
• FY26 JiHu-related non-GAAP expenses expected ~$18M (vs $13M last year).

Business Commentary:

* Revenue Growth and Strategic Focus: - GitLab reported a 29% year-over-year increase in revenue to $236 million in Q2 FY 2026. - The growth was driven by a combination of strategic initiatives, including adding more new paying customers in the mid-market and enterprise segments and focusing on helping customers realize the value of their platform faster.

• AI Integration and Duo Agent Platform:
• GitLab's Duo Agent Platform saw a 6x increase in weekly active usage, although off a small base.

• The increase is attributed to the platform's ability to monetize autonomous work done, transforming GitLab's business model from seat-based to a hybrid seat plus usage-based model.

• Customer Retention and Expansion:

• GitLab's dollar-based net retention rate (DBNRR) for Q2 was 121%, driven by seat expansion accounting for approximately 80% of the growth.

• The strong retention rate reflects the value proposition of GitLab's AI-native DevSecOps platform, with 91% of customers surveyed expecting their use of GitLab to increase within the next 24 months due to AI.

• Operating Margin and Financial Performance:

• Q2 non-GAAP operating income was $39.6 million, compared to $18.2 million in the previous year, representing an increase of 682 basis points year-over-year.
• The improved margin reflects operational efficiencies and a strategic focus on customer retention and expansion, supported by significant growth in GitLab Dedicated contributing approximately $50 million in ARR and growing 92% year-over-year.

Sentiment Analysis:

• Strong Q2: revenue up 29% YOY to $236M; non-GAAP gross margin 90%; operating margin 16.8% vs 10% prior year. FY profit outlook raised, but full-year revenue held to reflect go-to-market changes and incremental SMB softness. Q3 guide implies ~23% YOY growth; FY26 revenue growth ~24% maintained.

Q&A:

• Question from Robbie Owens (Piper Sandler): What’s changing with recent leadership shifts, and is H2 guidance more conservative given SMB softness and GTM changes?
  Response: CEO: New and existing leaders are positioned to scale past $1B and capitalize on AI. CFO: Beat benefited from linearity and mix; held FY revenue to prudently absorb GTM changes, spreading Q2 beat across Q3–Q4; raised profitability.

• Question from Matthew Hedberg (RBC Capital Markets): Timing for new GTM initiatives to impact new customer lands?
  Response: Ramp three initiatives in H2—new business division, enhanced enterprise playbooks/pipeline, and capacity planning—with early benefits expected in FY27; full-year revenue guidance unchanged.

• Question from Kasthuri Rangan (Goldman Sachs): What does success look like in the GTM transition?
  Response: Success = dedicated first-order motion, stronger enterprise playbooks and pipeline, and refined capacity/verticalization; ramp through H2 to position for scale beyond $1B in FY27.

• Question from Koji Ikeda (BofA Securities): What’s driving SMB softness, how long could it persist, and how big is SMB?
  Response: SMB is ~8% of revenue; more price sensitive post-price increase. Low-touch web-store channel came in light; testing promos/pricing. Expect softness to persist through year; monitoring.

• Question from Derrick Wood (TD Cowen): Risk of AI coding vendors expanding into your lifecycle; how defensible is GitLab?
  Response: GitLab addresses the 80% of work in change management across the lifecycle, complementing code-gen tools; deep integrations (e.g., Cursor, Amazon Q, Gemini) make it additive, not a direct threat.

• Question from Sanjit Singh (Morgan Stanley): Why deceleration in new logo adds and timeline to re-accelerate?
  Response: Historically lacked specialized first-order sellers; shifting to a dedicated new business team and PLG motion. Ramping in H2 with early impact expected in FY27.

• Question from Brian Essex (JPMorgan): How will appointing a Chief Product and Marketing Officer (PLG expertise) affect growth and investment?
  Response: Dual motion: maintain high-touch enterprise sales while adding PLG to speed adoption/feedback and broaden top-of-funnel; expected to improve innovation velocity without disrupting FY26 guidance.

• Question from Gray Powell (BTIG): Will H2 GTM changes disrupt territories/comp; are you moving to hunter-farmer?
  Response: No FY26 changes to comp or territories. Standing up a new customer acquisition team (hunter-like) while existing reps focus on expansion; changes factored into guidance.

• Question from Michael Cikos (Needham & Company): How are you using comp to incentivize new logos, and what’s the sales ramp time?
  Response: Light tweaks this quarter; broader specialization (new logos and verticals) coming as natural evolution to scale past $1B. Enterprise rep ramp time is 6–9 months.

• Question from Damon Kogan (Barclays): Drivers of 39% SaaS growth; any Q2 onetime items; is implied Q4 growth a proxy for next year?
  Response: Q2 benefited from strong month-1 linearity and more self-managed revenue recognition. SaaS/Dedicated preferred for faster ROI; Dedicated ARR up 92% YOY. FY guide reflects smoothing Q2 beat over Q3–Q4; not a next-year proxy.