Why GitLab Stock Was Tumbling Today

Shares of GitLab (GTLB -18.81%) were falling today after the cloud software company posted solid results in its fourth-quarter earnings report, but issued disappointing guidance, which can be a kiss of death for a high-priced stock like the DevOps specialist.

As a result, shares were down 18.8% as of 11:08 a.m. ET.

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GitLab posts a strong quarter, but…

GitLab, which helps businesses manage their software development and deployment, said that revenue in the quarter jumped 33% to $163.8 million, beating estimates for $158.2 million. Customer growth was strong across the board, but especially at the highest-value levels as customers with more than $1 million in annual recurring revenue jumped 52% to 96, showing its customers are scaling up with GitLab as they grow.

Its dollar-based net retention rate was 130%, showing that spending from existing customers increased 30% in the quarter. It also reported a 55% increase in remaining performance obligations (RPO) to $674 million, a sign that it still has a robust pipeline of contracted work.

Further down the income statement, margins continued to expand with gross margin improving from 88% to 90%, and its adjusted operating loss flipped from a loss of $13.8 million in the quarter a year ago to just $13.2 million.

It also reported a per-share profit of $0.15, compared to a loss of $0.03 a year ago. That result beat estimates for $0.08.

Sid Sijbrandij said: “We delivered a strong fourth quarter and continue to see large enterprise customers standardize on GitLab to realize business value. By integrating AI throughout the software development lifecycle, our DevSecOps platform allows our customers to plan, build, manage, and deliver software more efficiently, ultimately scaling the impact their software investments have on business outcomes.”

…Wall Street didn’t like the guidance

GitLab sees revenue growth slowing to around 26% to $725 million to $731 million in fiscal 2025, which was below the consensus at $731.7 million, and it expects adjusted earnings per share to be just $0.19 to $0.23, which is basically flat from 2023 results and worse than the average estimate at $0.35.

While guidance in the software sector is often conservative, GitLab shares are pricey at a price-to-sales ratio around 13 based on this year’s forecast. Given the weak bottom-line guidance, a step-back in the stock price seems to make sense despite an otherwise solid quarter.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GitLab. The Motley Fool has a disclosure policy.

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