BofA Securities has adjusted its outlook on GitLab Inc (NASDAQ: NASDAQ:GTLB), a company specializing in DevSecOps—a set of practices that combines software development (Dev), security (Sec), and operations (Ops).
The firm's analyst revised the price target downward to $66 from the previous $80, while still affirming a Buy rating on the stock.
The adjustment comes ahead of GitLab's scheduled report of F2Q25 results, which is expected to align with or surpass market expectations. This anticipation is based on the company's recent confirmation of its guidance.
The analyst indicates that for the report to act as a catalyst for the stock, it may need to exceed expectations and raise future guidance.
Supporting the positive rating, a recent survey conducted by the analyst suggests that GitLab is successfully disrupting the market and capturing a share of the over $50 billion DevSecOps Total Addressable Market (TAM).
The report will be closely watched for its total revenue figures, with an analyst forecast of $176.5 million, marking a 26.5% year-over-year growth, which is slightly below the Street's expectation of $176.9 million.
The call is also anticipated to provide insights into how GitLab's strategy for add-ons is progressing. Despite the reduced price objective, the firm reiterates its confidence in the company's long-term prospects.
The new price target is based on an 11x Enterprise Value to Fiscal Year 26 Estimated (EV/FY26E) revenue multiple, down from the previous 13.4x, resulting in a 0.4x EV/Revenue/Growth (EV/R/G) multiple.
The adjustment takes into account GitLab's leading position in the DevSecOps space, while also considering the potential for increased competition, particularly from AI-powered code generation alternatives. GitLab's infrastructure software peers are currently trading at a 6.2x EV/FY26E revenue multiple and a 0.5x EV/R/G multiple.
In other recent news, TD Cowen lowered its price target to $58 from the previous $76, while Mizuho reduced its target from $62 to $58. Despite these changes, both firms maintained their positive ratings on the company.
GitLab confirmed its financial guidance for the second quarter and fiscal year 2025, projecting Q2 revenues between $176.0 million and $177.0 million, and fiscal year revenues between $733.0 million and $737.0 million. This followed the resignation of Chief Revenue Officer Christopher Weber, with Ashley Kramer appointed as the interim replacement.
Rumors have also circulated about GitLab engaging in acquisition talks, with Datadog (NASDAQ:DDOG) Inc. identified as a potential buyer. TD Cowen maintained its Buy rating on GitLab following the launch of GitLab 17, which introduced significant updates aimed at enhancing the software development platform.
InvestingPro Insights
As GitLab Inc (NASDAQ:GTLB) approaches the release of its F2Q25 results, investors are scrutinizing the company's financial health and market position. According to InvestingPro data, GitLab boasts a market capitalization of $7.52 billion and has displayed an impressive gross profit margin of 89.63% over the last twelve months as of Q1 2025. This indicates a strong ability to generate revenue over its cost of goods sold, which may be a reassuring factor for investors looking at the company's fundamentals.
Furthermore, GitLab's revenue growth remains robust, with a 34.15% increase over the last twelve months as of Q1 2025. This growth trajectory supports the analyst's view of GitLab's potential to disrupt the market and expand its share within the DevSecOps Total Addressable Market. However, it's worth noting that GitLab is trading at a high Price / Book multiple of 13.24, which could suggest the stock is priced optimistically relative to its book value.
InvestingPro Tips for GitLab also highlight that the company holds more cash than debt on its balance sheet and that analysts have revised their earnings upwards for the upcoming period. This could indicate a positive outlook on the company's financial stability and future performance. For investors seeking a deeper analysis, there are 21 additional InvestingPro Tips available, providing a comprehensive understanding of GitLab's investment potential.
With the next earnings date set for September 3, 2024, and a fair value estimate of $61 by analysts versus InvestingPro's fair value of $44.32, the upcoming report could indeed act as a catalyst as BofA Securities suggests. The insights from InvestingPro underscore the importance of monitoring both the company's financial metrics and market expectations as GitLab continues to navigate the competitive DevSecOps landscape.
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