GitLab's Q1 Earnings: AI-Driven Growth Amidst Conservative Outlook

GitLab's revenue outlook comes up short and its stock gets hammered - SiliconANGLE

GitLab's revenue outlook comes up short and its stock gets hammered Shares of the DevOps pioneer GitLab Inc. were battered and bruised in late trading today after it increased its full-year profit outlook but narrowly missed expectations on sales guidance. That came after it logged a narrower loss in the first quarter and grew its revenue. The company, which provides software development tools for enterprises, reported first-quarter earnings before certain costs such as stock compensation of 17 cents per share, edging past Wall Street's target of 15 cents. Revenue for the period rose by an impressive 27% to $214.5 million, ahead of the analyst's $213.2 million forecast. Those numbers meant GitLab was able to reduce its net loss to $36.2 million in the quarter, after posting a wider loss of $55.4 million in the year-ago period. GitLab is a major player in the DevOps industry, selling software that helps companies to adopt a modern strategy of pushing out rapid and continuous updates by combining their developers teams and information technology operations staff. By using GitLab's tools, developers can share code more easily and ship out new applications faster than before. The company has been growing fast and is often seen as a rival to the Microsoft Corp.-owned GitHub, but it has endured a rough year, with its co-founder and former Chief Executive Sid Sijbrandij stepping down late last year after being diagnosed with cancer. There was talk that GitLab might become an acquisition target for companies including Datadog Inc., but the appointment of former New Relic Inc. CEO Bill Staples (pictured) as Sijbrandij's replacement appears to have put those rumors to bed. Nowadays, GitLab is laser-focused on its mission, "giving every developer the AI-driven edge they need to innovate faster and more efficiently," Staples said today. "As AI transforms development practices, our unified platform enables organizations to integrate these capabilities within a framework that helps maintain enterprise controls and deliver the required scalability and security." The strong start to the year seems to have given GitLab some impetus, and the company said it's raising its full-year earnings forecast to a range of 74 cents to 75 cents per share, up from an earlier outlook of 68 cents to 72 cents. Wall Street is looking for full-year earnings of 72 cents per share. However, the company could only reiterate its prior outlook for revenue, saying it's still targeting a range of $936 million to $942 million. The midpoint of that range is just shy of Wall Street's target of $939.7 million in full-year revenue. GitLab's current-quarter forecast was also left wanting. The company said it's expecting to earn a profit of 16 cents to 17 cents per share on sales of $226 million to $227 million, while Wall Street is modeling earnings of 16 cents on revenue of $226.6 million. The market's reaction was sour. GitLab's stock fell more than 11% in the after-hours trading session, and is now down more than 13% in the year to date.

GitLab Q1 Revenue Jumps on AI Demand

GitLab Inc. (GTLB -10.49%) reported Q1 FY2026 results on June 10, 2025, posting revenue grew 27% year-over-year to $214.5 million and a non-GAAP operating margin reached 12%. The earnings call highlighted accelerated AI adoption, strategic customer wins, record adjusted free cash flow, and reaffirmed its guidance of approximately 24% top-line growth for FY2026, delineating critical platform initiatives and market expansion opportunities for long-term investors. Accelerated AI-Driven Product Adoption and Key Customer Validation GitLab Duo, the company's suite of AI-driven development capabilities, saw the number of first-time Duo customers rose 35% quarter-over-quarter, while notable wins included Highmark Health, the FBI, NatWest, and Volkswagen Digital Solutions. 52% of total Annual Recurring Revenue (ARR) now comes from customers using the Ultimate tier, indicating growing enterprise demand for advanced security and AI features. "Momentum with Git Lab Duo continues to grow, particularly with Duo Enterprise. In Q1, the number of customers who purchased GitLab Duo for the first time increased 35% quarter-over-quarter. We also closed some great expansion deals with existing customers. For example, Highmark Health and" -- William Staples, CEO Rising penetration of AI-powered solutions and premium-tier adoption signals deeper platform entrenchment, enhancing GitLab's competitive moat as enterprise DevSecOps requirements intensify. Sustained Operating Leverage and Record Free Cash Flow The company generated $104.1 million in adjusted free cash flow with a 49% free cash flow margin, marking an all-time quarterly high, while non-GAAP operating income reached $26.1 million, compared to a $3.8 million loss in the same period last year. SaaS revenue, now 30% of total, increased 35% year-over-year due to strong adoption of GitLab Dedicated, further non-GAAP gross margin of 90%. "We generated $104.1 million in adjusted free cash flow in Q1, a record adjusted free cash flow margin of 49%.Non-GAAP operating margin was 12.2% compared to negative 2.3% in Q1 of last year, an increase of approximately 1,400 basis points year-over-year." -- Brian Robbins, CFO Efficient scaling of GitLab's business model, characterized by high margins and effective cost control, provides substantial financial flexibility for continued AI investment and reduces medium-term execution risk. Strategic Expansion of AI Platform Capabilities and Ecosystem High-profile integrations, notably the launch of GitLab Duo with Amazon Q and expanding agentic AI features, were supported by AI-assisted test generation accelerated by more than 35% during R+V Insurance's recent Duo Enterprise evaluation. April set an all-time record for customer-driven contributions, highlighting a robust community innovation engine that aligns product enhancements tightly with enterprise needs. "In April, we launched GitLab Duo with Amazon Q, a strategic integration that embeds Amazon Q's autonomous software development agents directly within the GitLab DevSecOps platform...Our private beta satisfaction metrics are really compelling. 82% of surveyed users already classify themselves as either satisfied or very satisfied with Workflow's capabilities, validating our strategic investment in agentic software development." -- William Staples, CEO Ongoing investment in native AI workflows and broad ecosystem interoperability ensures GitLab's continued relevance as development environments evolve, and positions the company as a foundational, future-proofed DevSecOps platform amid intensifying automation trends. Looking Ahead Management guided Q2 FY2026 total revenue to $226 million to $227 million and full-year FY2026 revenue to $936 million to $942 million (both implying 24% year-over-year growth), with non-GAAP operating income for FY2026 projected at $117 million to $121 million and non-GAAP net income per share of $0.74 to $0.75 on 172 million shares for FY2026. GitLab remains on track to publicly launch Duo Workflow (agentic AI) this winter and will detail further product innovation at the GitLab 18 launch event on June 24. No incremental changes to guidance philosophy or macroeconomic assumptions were provided during the call.

GitLab Stock Drops on Conservative Guidance. Here's Why This Pullback Looks Like a Buying Opportunity. | The Motley Fool

Shares of GitLab (GTLB -5.67%) sank after the company issued conservative guidance. The stock is now down more than 20% on the year. However, the sell-off looks overdone for a company that has consistently delivered strong revenue growth and increasing profitability. For those unfamiliar with GitLab, it operates a DevSecOps (development, security, and operations) platform that helps customers develop software while embedding cybersecurity features into all stages of the process. The company has been an artificial intelligence (AI) beneficiary, as AI has led to customers increasing their software development. The company has also been seeing customers flock to upgrade to higher-tier platforms and GitLab Duo, an AI assistant that provides coding suggestions and automation to help speed up development. Gitlab said the big advantage of its solution is that it works within all cloud providers as well as in air-gapped environments, which are highly sensitive settings that have no access to outside networks. It said that security continues to be a key driver of adoption for its Ultimate tier, with new tools giving customers better visibility into risks to allow them to focus on what matters most, the code. Gitlab's Ultimate tier now represents 52% of total annual recurring revenue (ARR). On the AI side, it is now including GitLab Duo with both its Premium and Ultimate tiers, making it easy for developers to get started with chat and code suggestions right out of the gate. It is also now offering Duo Enterprise to Premium users, which it thinks will help expand its total addressable market. In Q1, it saw a 35% increase in customers purchasing Duo for the first time. It added that it is on track to launch its agentic AI solution, GitLab Dual Workflow, this winter. These dynamics once again led to GitLab producing strong quarterly revenue growth. For its fiscal 2026 Q1 (ended April 30, 2025), revenue jumped 27% year over year to $214.5 million. That was ahead of the company's prior forecast for revenue between $212 million and $213 million. It was the seventh straight quarter that GitLab has seen revenue growth of between 25% to 35%. Data source: GitLab earnings reports. Subscription revenue climbed 29% to $194.5 million, while license revenue rose 11% to $20 million. The company continues to do a great job expanding within its existing customer base. Its dollar-based net retention was 122%. This metric measures the spending of existing customers after churn, with a number over 100% indicating that customers are increasing their spending. GitLab said seat expansion was responsible for 80% of the increase, improved customer yields contributed 5%, and upgrades to higher-tier platforms represented 15% of the rise. GitLab also continues to see strong growth with its enterprise customers. The number of customers with $100,000 or more in ARR increased by 26% to 1,288. Remaining performance obligations (RPO) soared 40% to $955.1 million, while cRPO (current RPO) jumped 34% to $584.8 million. RPO includes both revenue received from upfront payments that have yet to be recognized as revenue, as well as revenue from un-cancellable contracts. These metrics are supposed to be an indication of future growth, and some investors likely were disappointed that the strength in these metrics did not translate into increased revenue guidance. On the profitability front, GitLab's adjusted earnings per share (EPS) surged from $0.03 a year ago to $0.17. It had a gross margin of 88% in the quarter. The company generated $104.1 million in adjusted free cash flow in the quarter compared to only $37.4 million a year ago. It ended the quarter with $1.1 billion in cash and short-term investments and no debt. Looking ahead, GitLab maintained its full-year fiscal 2026 forecast for revenue of between $936 million and $942 million, representing about 24% growth. It boosted its adjusted EPS guidance to between $0.74 and $0.75, up from a prior outlook of between $0.68 and $0.72. For fiscal Q2, it forecast revenue of between $226 million and $227 million, representing growth of around 24%. It is looking for adjusted EPS in a range of $0.16 to $0.17. While investors have sold off GitLab stock this year, there is a lot to like about the stock. While there is a narrative that AI could lead to the need for fewer coders -- and less need for GitLab's solutions -- thus far, the opposite has been true. Its customers have been writing more code and expanding seats with GitLab while upgrading to its high-tier platforms. This has led the company to see consistent 25% to 40% quarterly revenue growth over the past two years. It has nearly 90% gross margins, and it's seeing its profitability skyrocket. On top of that, it's starting to generate strong free cash flow and has a rock-solid balance sheet with over $1 billion in cash and no debt. Take out the AI as a threat narrative, and investors would be falling over themselves for a stock with those underlying metrics. Instead, the stock trades at a price-to-sales multiple of 7.5 times fiscal year 2026 analyst estimates. Excluding its net cash, its enterprise value-to-sales ratio is only about 6.4 times. Overall, GitLab is a fast-growing software-as-as-service (SaaS) company flush with cash with high gross margins and strong free cash flow. While the risk of AI disruption is possible, thus far, there has been no indication that this is happening. Instead, the company is benefiting from AI. That makes the stock a buy.