Bull of the Day: GitLab (GTLB)

GitLab (GTLB) is the $9 billion pioneer of a leading DevOps platform serving the various needs of software developers, operations, and security teams. Their code hosting and collaboration platform services offer continuous integration, source code management, out-of-the-box pipelines, agile development, and value stream management.The company's focus is to enable faster development and iteration of software, in a more secure manner from the inception of code generation to client deployment.I last wrote about GitLab as the Bull of the Day in late October when shares were trading $55. From digging through analyst reports, it was clear they liked the growth outlook with new products and increasing enterprise penetration.  That report has good background on the enthusiastic analyst views from Truist, Morgan Stanley, and Needham. They all recognized the emerging role of GitLab as a unique enterprise platform provider in software.After the company's December 5 beat-and-raise earnings report, the stock spiked above $70. I revisit the GTLB story now because estimates have jumped again but the stock is back down in the $50s, setting up an opportunity. Here's what I wrote in October..."With all the talk of AI about to replace developers as software writes itself, you wouldn't know it looking at the growth of GitLab. The open core platform is on pace to hit nearly $750 million in sales this fiscal year (ends January), representing 28% growth. Plus, analysts are already projecting a 24% top line advance for next year to eclipse $900 million."Q3 Lights It Up AgainThe demand story continues for GitLab. Q3 revenue jumped 31% to $196 million, topping the analyst consensus of $188 million by 4.25%. Adjusted earnings of 23 cents a share beat forecasts by 7 cents, for a big positive surprise of 43.75%.GuruFocus summed things up with this spice on December 6: "The secret sauce? GitLab's all-in-one DevSecOps platform, which is becoming the go-to for over half of the Fortune 100. Oh, and did we mention that operating margins hit 13%, up from just 3% last year?"GuruFocus proceeded with these interesting highlights and a potential concern that might explain the stock falling back..."Accounts shelling out more than $100K annually jumped 31% year-over-year. And GitLab isn't just resting on its laurels -- it's doubling down on innovation with AI-powered upgrades and tighter security features, plus some heavy-hitting partnerships with AWS. Still, not everything's rosy. Cash usage skyrocketed this quarter, signaling a potential speed bump as GitLab chases growth in a crowded field."I'm not sure if GitLab is in a crowded field given their specialization as an enterprise software dev platform, but another concern investors might have had after the stock could not hold the spike above $70 is that Gitlab co-founder Sid Sijbrandij announced he would step down as chief executive to focus on his cancer treatment. The company tapped Bill Staples, former CEO of New Relic, to succeed Sijbrandij. Investors are clearly giving Staples time to settle in.Guidance and Analyst ReactionsThe code-hosting platform also raised their full-year outlook to adjusted EPS of 63-64 cents on $753-754 million in revenue, representing 215% and 30% growth, respectively. That was up from prior analyst projections of $744 million and 46 cents on the top and bottom lines, respectively, for fiscal 2025 (ends this month).Besides the necessary bumps in EPS projections for this year (given the Q3 beat), the spreadsheet jockeys took next fiscal year (begins February) up a juicy 27% from 59 to 75 cents.RBC Capital Markets wrote in a research note that GitLab remains a "favorite" growth idea after reporting better-than-expected Q3 results, with revenue growth accelerating to 31% year-over-year.RBC highlighted that an upward revision of fiscal 2025 revenue growth guidance "now points to 30% growth vs. 28% previously along with better profitability." They raised their price target on shares to $80, reiterating an Outperform rating.The investment bank also said they believe GitLab's newly appointed Chief Executive Officer Bill Staples is a "good fit for the role," adding that it expects a "seamless transition."Here's what the rest of the Street did with their price targets, with the 3 investment banks I cited in October's article on top... Truist Securities raises PT to $90 From $80Morgan Stanley raises PT to $77Needham maintains Buy and $85 PTUBS jumps PT to $85 from $65Piper Sandler maintains OW, PT to $85Goldman Sachs maintains Buy, PT to $88Bottom line: The emergence of software code being produced more and more by AI applications will not cease. But it seems that GitLab has found a sweet spot of growth in that environment by providing essential platform tools for enterprise to get more of these jobs done faster and with better security. 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