GitLab's earnings preview: A look at potential SMB stabilization and its impact
GitLab (GTLB) is poised to unveil its Q4 (Jan) financial outcomes post-market today, with a follow-up discussion at 4:30 pm ET. Expectations from FactSet suggest a 27% year-over-year dip in adjusted earnings to $0.08, alongside a revenue jump of 28% to $157.89 million. Since its IPO in late 2021, GitLab has consistently outperformed both earnings and revenue forecasts, often by mid-single digits.
GitLab's history of exceeding expectations is complemented by its habit of providing optimistic future earnings and revenue forecasts, generally surpassing consensus predictions. A significant uplift in share value was noted last quarter following the company's positive earnings projection against analyst expectations of a loss, propelling shares up approximately +70% since November and rebounding off their 50-day moving average.
The company benefits from several growth drivers, including the escalating demand for technologies to meet expanding user needs, combat cyber threats, and adhere to regulations. GitLab's platform boasts a sevenfold increase in customer cycle times. Moreover, it stands out for integrating AI across the entire software development lifecycle, keeping AI demand robust.
Investors should keep an eye on key performance indicators like major customer acquisitions, non-GAAP operating margins, and sales cycle durations. Despite a Q3 stabilization in enterprise segment purchases, prolonged sales cycles and cautious spending in the mid-market and SMB sectors were observed, attributed to the unpredictable economic landscape. Signs of stabilization in SMB purchases in Q4, or expectations for such in FY25, will be crucial for investors.
Notably, GitLab's stock has shown volatility around earnings announcements, experiencing significant fluctuations. For instance, a more than 20% drop post-Q4 2023 results was followed by a 30% increase after the subsequent quarter. The stock saw an approximate 11% rise after the Q3 announcement.
As GitLab navigates the challenges and opportunities presented by the evolving demands for cybersecurity, user experience, and regulatory compliance, its unique position with an AI-integrated software development platform could further enhance its market share, especially if SMB purchasing trends begin to stabilize.