GitLab, A Beneficiary Of Vendor Consolidation And Growing Cloud Adoption, Analyst Says

KeyBanc analyst Michael Turits reiterated Overweight on GitLab Inc GTLB with a $60.00 price target.

The re-rating of the DevSecOps platform leader came post management meetings last week with CFO Brian Robins and VP IR Jack Andrews.

The meeting underscored the long-term drivers for DevSecOps demand in a software-driven world; GitLab's leadership as an independent platform consolidating point vendor solutions; the relative resilience of GitLab's business given that consolidation opportunity, low internal customer penetration, and low per-seat pricing. 

The analyst saw increasing customer preference for vendor consolidation and standardization on a single platform's planning, governance, and pipelining tools and saw GitLab as the leading and broadest independent consolidator, well positioned to "shift right" from its offerings in a code repository and CI to application security, CD, and operations.

Gitlab delivered a 7% F3Q revenue beat, followed by solid quarters from MongoDB and Hashicorp that suggest ongoing cloud-native application development despite the macro and decelerating hyperscale revenue growth

The solid F3Q reports from GitLab, MongoDB, and Hashicorp suggest ongoing cloud-native application development even amid the challenging macro and decelerating hyperscale revenue growth.

GitLab on the F3Q call did indicate some macro impact late F3Q as tech hiring cuts progressed, including pressure on DBNRR, with a "slight uptick in contraction" and increased deal scrutiny, all suggesting some ongoing macro risk. 

Turits saw relative resilience in GitLab's business given that consolidation opportunity, low internal customer penetration, and low per-seat pricing, even with its Ultimate edition. 

Turits expect that as different personas within the enterprise adopt GitLab, the opportunity for seat adoption increases. While the ARR % of Ultimate has been steady at 39% in the last three quarters, the analyst would expect that % to increase as app security use cases increase.

On the margin side, the analyst was encouraged by double-digit increases in % operating margins and suggested a substantial opportunity for operating leverage into next year.

 The analyst views GTLB as the dominant independent DevSecOps platform, a beneficiary of vendor consolidation and increasing public cloud adoption, with DevSecOps a core area of spending even in a downturn. 

Price Action: GTLB shares traded lower by 4.72% at $47.42 on the last check Monday.

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