In an era where software
development is becoming increasingly AI-driven and security-conscious, GitLab
Inc. (NASDAQ: GTLB) stands out as a leading DevSecOps platform. The company
recently reported its Q1 Fiscal Year 2026 earnings with strong revenue growth,
improving margins, and EPS increase. For investors seeking a blend of growth
potential and sound valuation, GitLab’s latest results present a compelling
opportunity. In this article we will dive into GitLab recent earnings, stock
performance & valuation, growth potential, and the risks investor should
consider.
About GitLab
Founded in 2014 by Dmytro
Zaporozhets and Sytse Sijbrandij, GitLab Inc. operates a unified, cloud-native
DevSecOps platform that allows organizations to plan, build, secure, and deploy
software in a single application. With over 50 million registered users and a
presence in more than half of the Fortune 100, GitLab’s all-remote model and
global developer footprint underpin its agile, scalable infrastructure.
GitLab Financial Performance
GitLab’s Q1 fiscal year 2026
results, covering the quarter ending April 2025, reinforced its strong
financial trajectory. GitLab reported Q1 FY2026 revenue of $214.51 million,
marking a 26.79% year-over-year increase from $169.19 million in Q1 FY2025. Although
GitLab continues to operate at a GAAP net loss, the company is showing
meaningful progress toward sustained profitability. For Q1 FY2026, earnings per
share (EPS) came in at -$0.22, significantly improved from -$0.35 a year ago, a
37.14% reduction in net loss. On a trailing twelve-month (TTM) basis, revenue
reached $804.57 million, a 29.31% increase compared to $622.22 million a year
ago. EPS TTM turned positive at $0.08, a remarkable shift from –$2.75 in the
previous year. This 102.91% improvement signals efficient cost management and
improving operational leverage as GitLab scales.
GitLab’s gross profit margin
stands at a high 88.64%, consistent with typical SaaS industry leaders,
indicating the scalability of its platform and software delivery model. The
company also achieved a net profit margin of 1.62%, crossing into profitability
territory and showing promising signs of sustainable financial health.
Return on Assets and Return on
Equity remain modest but positive at 0.9% and 1.89%, respectively. These
figures, while not yet high, underscore the company’s progress in turning
growth into earnings, especially given GitLab’s capital-efficient model and lack
of long-term debt reflected by a no Debt-to-Equity ratio, indicating a
debt-light balance sheet.
Over the past five years,
GitLab's revenue has been growing at a 48% CAGR. Net income has started to turn
positive, while free cash flow has continued to fluctuate.
GitLab Fiscal 2026 Financial
Forecast
Looking ahead, analyst consensus
estimates for FY2026 project revenue of $942.87 million, representing a 24.18%
increase from FY2025’s $759.25 million. On the earnings side, analysts expect a
non-GAAP EPS of $0.75, up slightly from $0.74 in FY2025, a 1.7% increase. This
signals that GitLab is stabilizing earnings while continuing to grow its top
line significantly.
Market sentiment remains
favorable, with analysts assigning a Strong Buy rating. The average 12-month
price target is $63.22, implying a 53.33% upside from current levels. Notably,
the highest target price of $85 reflects potential upside of 106.23%, suggesting
that analyst sees significant opportunity if GitLab stock valuation expand
significantly.
GTLB Stock Price Performance
and Valuation
At the time this article was
written, the stock is trading at $41.23. Over the past year, GitLab's stock has
faced a modest decline, with its share price dropping 8.84% underperforming the
S&P 500, which gained 10.06% during the same period. Since its initial
public offering (IPO) in October 2021, GitLab's stock has decreased by 64.15%,
while the broader S&P 500 has risen 33.9%. This underperformance may seem
concerning at first glance, but it also presents a compelling opportunity for
long-term investors, especially considering the company’s financial performance
and valuation.
From a valuation perspective,
GitLab is priced with a trailing twelve-month (TTM) price-to-sales (P/S) ratio
of 8.31, and a forward P/S ratio of 7.22, which is reasonable for a high-growth
software company with gross margins nearing 90%. Although the non-GAAP TTM
price-to-earnings (P/E) ratio is 46.85 and the forward P/E stands at 54.78,
these elevated figures are typical for premium SaaS companies that are in the
early stages of profitability but possess significant expansion potential.
Based on FinChat data, if we look
at the valuation since 2022, the forward P/S is significantly
below the average. In May 2023, it reached its lowest level and then the stock
has gone up 150%. A similar scenario could be possible, as GitLab's financial
metrics continue to grow significantly.
GitLab Growth Potential
GitLab’s growth prospect remain
robust, driven by several factors.
- Customer Growth and Expansion
Metrics
GitLab's customer base continues to expand robustly, with the total number of customers generating more than $5,000 in Annual Recurring Revenue (ARR) reaching 10,104, up 13% year-over-year. More significantly, high-value customers with ARR exceeding $100,000 grew by 26% year-over-year to 1,288, demonstrating strong enterprise traction.
The company maintains a healthy Dollar-Based Net Retention Rate of 122%, indicating strong expansion within existing customer accounts. This metric reflects that 80% of expansion comes from seat growth, 15% from platform upgrades, and 5% from improved customer yields. The Total Remaining Performance Obligation (RPO) surged 40% year-over-year to $955.1 million, while current RPO increased 34% to $584.8 million. - Market Position and
Competitive Advantages
GitLab operates in a substantial total addressable market estimated at $40 billion, with the company currently holding approximately 2.2% market share, suggesting significant room for expansion. According to Value Market Research. The DevSecOps market itself is projected to grow at a compound annual growth rate of approximately 29% through 2033.
The company has been recognized as a leader by independent research firms, with Forrester noting that "GitLab is the most all-in-one of the all-in-one solutions and suits enterprises looking to standardize with a single purchase". This positioning addresses the growing demand for platform consolidation, as 64% of organizations want to consolidate their toolchains and 70% report it takes more than a month to onboard new developers. - AI-Driven Growth Strategy
GitLab's strategic focus on becoming the leading AI-native DevSecOps platform represents a key growth driver. The company has integrated AI capabilities throughout its platform with GitLab Duo, which includes Code Suggestions and Chat features now available at no additional cost for Premium and Ultimate customers.
Customer adoption of AI features shows strong momentum, with a 35% quarter-over-quarter increase in customers purchasing GitLab Duo for the first time. The company's AI strategy includes both immediate productivity enhancements and future agentic AI capabilities, with GitLab Duo Workflow expected to launch in winter 2025.
Risks to Consider
While GitLab looks like a
compelling opportunity, we should be mindful of potential risk.
- Slowing Revenue Growth
GitLab's revenue growth has slowed, with a year-over-year increase of 26.8% in Q1 2026, down from previous quarters of 29.09%. Additionally, the net revenue retention rate dropped from 129% to 122%, signaling reduced success in upselling and expanding revenue from existing customers. This deceleration highlights challenges in maintaining strong growth momentum and customer expansion, which may affect the company’s future financial performance and investor confidence. - Cautious Forward Guidance
GitLab’s revenue guidance for Q2 and the full fiscal year 2026 slightly missed analyst expectations, raising concerns about the company’s growth sustainability. GitLab sees second-quarter adjusted EPS of between 16 and 17 cents, versus the 16 cent estimate, and revenue of between $226 million and $227 million, versus the $227.16 million analyst estimate. While Q1 results beat estimates, the cautious outlook contributed to a stock decline. Additionally, the GAAP still in net loss, underscoring ongoing profitability risks despite improvements in operating margins and revenue growth. - Intense Competition
GitLab faces fierce competition from major players like Microsoft’s GitHub and AWS DevOps tools. While GitLab offers an all-in-one DevSecOps platform covering the entire DevOps lifecycle, GitHub is widely popular with a strong community and a more intuitive interface. Failure to differentiate, particularly by enhancing AI-powered features, could threaten GitLab’s market share as competitors continue to innovate and expand their offerings.
Conclusion
GitLab’s Q1 FY 2026 earnings
underscore its successful pivot toward profitability, with a 27% revenue
increase, improving margins, and improved EPS. While its share price currently
lags behind broad markets, the fundamentals are falling into place: AI
innovation, large customer penetration and robust platform strength. Competitive
pressures and execution execution risks exist, yet GitLab’s financially
disciplined, product-rich model makes it a strong candidate for long-term
investment.
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