GitLab’s stock experienced a significant surge on Tuesday following the announcement of its first ever adjusted operating profit. Despite this positive development, analysts at D.A. Davidson suggest that a rival software-development company may offer a more advantageous investment opportunity in the growing sector.
Strong Performance and Increased Productivity
Premarket trading of GitLab shares on Tuesday saw a remarkable 16% increase, reaching $61.46. The company released its fiscal third-quarter earnings, which exceeded analysts’ expectations. GitLab attributed this success to its GitLab Duo suite, equipped with artificial intelligence capabilities that enhance software engineers’ productivity.
Mixed Views on Valuation and Customer Confidence
Although D.A. Davidson analyst Gil Luria raised the target price for GitLab stock to $60 from $50, he maintained a neutral rating for the stock. Luria argued that GitLab’s valuation appears stretched due to cautious midmarket and smaller business customers in an uncertain macroeconomic environment. This was conveyed by GitLab executives during an earnings call, which indicated that sales cycles were elongated.
“While the demand environment appears to be stabilizing for GitLab, the extended sales cycles give us pause, especially considering that the monetization of GitLab Duo is a key catalyst for the company,” Luria explained.
JFrog: A Favorable Alternative
Luria expressed a preference for JFrog, a fellow software-development tools company, at current valuations. As of Monday’s after-hours trading, JFrog’s stock rose by 0.6% and has already increased 32% this year. It recently surpassed expectations for its own third-quarter performance.
Solid Financial Results
GitLab reported a net loss of $1.84 per share in the fiscal third quarter. However, after adjusting the earnings, the company showcased positive results, generating 9 cents per share. Additionally, the revenue increased by 32% to $149.7 million compared to the same period the previous year. This exceeded analysts’ predictions of an adjusted loss of 1 cent per share on a revenue of $141.5 million, according to a FactSet poll.
For the upcoming fourth quarter, GitLab anticipates revenue between $157 million and $158 million, along with an adjusted profit ranging from 8 to 9 cents per share.