Analyzing GitLab’s S-1

(T. Schneider)
(T. Schneider)
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GitLab (GTLB) is estimated to go public on October 14th. To get you ready for this highly anticipated IPO, we are digging into the company’s S-1 filing for you!

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Overview

  • GitLab (GTLB) provides software development and collaboration tools for programmers founded in 2014.
  • GitLab offers The DevOps Platform, a single application that brings together development, operations, IT, security, and business teams to deliver desired business outcomes.
    • DevOps is the set of practices that combines software development (dev) and IT operations (ops).
    • Its goal is to allow teams to collaborate and work together to shorten the development lifecycle and evolve from delivering software on a slow periodic basis to rapid, continuous updates.
  • The DevOps Platform has broad use across organizations.
    • It helps product and business teams to work with developers to introduce new features and drive successful business outcomes.
    • CTOs can modernize their DevOps environment to drive developer productivity.
    • CIOs can adopt microservices and cloud native development to improve efficiency, scale, and performance of their software architecture.
    • CISOs can reduce security vulnerabilities and deliver software faster.
  • GitLab emphasizes iteration and rapid innovation in its development strategy. On the 22nd day of every month for 118 months in a row, the company has released a new version of its software as of July 31, 2021.
  • There are over 2,600 contributors in GitLab’s global, open-source community as of July 31, 2021.
  • The company has been a 100% remote workforce since it started and had approximately 1,350 employees in over 65 countries at the end of July.
  • The DevOps Platform is used globally by organizations of all sizes across different industries.
    • The DevOps Platform is available on Google Cloud and Amazon Web Services (AWS)
  • GitLab employs a land-and-expand sales strategy. The customer journey typically starts with developers and expands to more teams.
  • GitLab’s dollar-based net retention rate was 148% and 152% as of January 31, 2021, and July 31, 2021, respectively.
  • Revenue grew from $81.2 million in fiscal 2020 to $152.2 million in fiscal 2021 (87% growth).

Industry Overview + Market Opportunity

  • GitLab believes the addressable market opportunity for the DevOps Platform is approximately $40 billion.
  • Industry trends
    • Digital transformation is driven by internal software development.
    • Modern software development requires companies to embrace DevOps and DevSecOps.
    • Faster time to market is key to business success.
    • Companies are embracing cloud-first and multi-cloud strategies.
    • Companies are consolidating point tools and adopting full platform services.
  • According to Gartner, the total addressable market for Global Infrastructure Software is estimated to be $328 billion by the end of 2021 and $458 billion by the end of 2024 (11.8% CAGR).
    • GitLab estimates it can serve $43 billion of this market by the end of 2021 and $55 billion by the end of 2024 (8.6% CAGR).

Growth + Pricing

Growth

  • Advance feature maturity across more stages of the DevOps lifecycle.
  • Drive growth by acquiring new customers.
  • Drive expansion in the current customer base.
  • Grow adoption of the SaaS offering.

Pricing + ARR

  • The DevOps Platform is available to any company, regardless of size, scope, and complexity of their development.
  • There are a large number of customers on paid trials or with single-digit users.
    • Companies with less than $5,000 of ARR collectively represent 7% of ARR for fiscal 2021
    • For purposes of determining the number of active customers, GitLab looks at customers with more than $5,000 of ARR in a given period – referred to as Base Customers.
  • GitLab offers a free tier that includes a large number of features to encourage initial use of The DevOps Platform, solicit wider community contributions, and create lead generation.
  • Two paid tiers, Premium and Ultimate, add on features and are priced on a per user basis.
  • Plans are available through self-managed or SaaS offerings.
    • For the self-managed offering, the customer installs The DevOps Platform on its own private, or hybrid cloud environment.
    • For the SaaS offering, the platform is managed by GitLab and hosted in the public cloud. From fiscal 2020 to fiscal 2021, the SaaS offering of ARR grew from 9% to 16%.
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Financials + Valuation

  • Early in 2021, GitLab confirmed that it oversaw a $195 million secondary sales that valued the company at $6 billion.
    • Before this, the company raised a Series E in 2019 of $268 million at a $2.75 billion valuation.
  • According to the S-1, GitLab (GTLB) is aiming to raise as much as $624 million at a valuation approaching $9 billion.
  • The S-1 shows shares being priced between $55 and $60 per share.
  • At $60 per share, the market cap of the company would be ~$8.6 billion. Depending on how much is raised from the IPO, the enterprise value could be around $8 billion.
  • If we anticipate growth slows to 65% from fiscal 2021 to fiscal 2022 (ending Jan 31), GTLB is would be trading ~31x 2022 sales and ~36x 2022 gross profit.

EDIT (10/15/2021): Now that GitLab is public, we can update the quick valuation multiples based on our assumptions. At $103.89, GTLB is trading at around a $14.9 billion market cap. With $800 million raised from the IPO and existing cash on the balance sheet, the enterprise value of GTLB is closer to $14 billion. If we assume growth for FY22 (ending January) slows to 65% and 50% growth for FY23, GTLB is trading ~42x forward sales and ~48x forward gross profit.

JO: This is a great growth software stock, but one that is unsurprisingly trading for a very high valuation. GitLab is and will probably remain too expensive for our tastes, but could be a fit for a pure growth and expectations momentum investor.

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