GitLab Earnings: GTLB flat after Q2 beat, better guidance

UPDATE: GTLB stock was placid after the devOPS platform delivered FQ2 results that beat analyst forecasts on top and bottom lines late Tuesday. GitLab reported non-GAAP EPS of $-0.15, better than the $-0.23 expected. Revenue of $101 million was $6.6 million ahead of consensus and up 74% YoY. Considering the present market, both results were quite positive, but GTLB stock failed to budge. In fact, shares lost 0.3% afterhours to trade at $47.24. Guidance for the third quarter and full fiscal year was also revised upward for the most part. Management said to expect a similar level of adjusted EPS in Q3 and put the revenue midpoint at $105.5 million, which was nearly $2 million above consensus. The main problem is that JPMorgan's contention that GitLab is overpriced has continued to keep the animal spirits at bay. GTLB will need to grow into the present valuation before a better macro environment creates a path upward.

GitLab (GTLB) stock was whittled down to size in the week preceding its fiscal second quarter earnings release. Shares are up 3.5% at $50 in Tuesday's premarket after losing 23.6% last week following a downgrade from JPMorgan. Wall Street expects adjusted earnings per share (EPS) $-0.23 on revenue of $94.4 million.

GitLab earnings preview

Analyst consensus has revenue growing 62.5% over its pre-IPO fiscal Q2 from 2021. GitLab, a digital development operations platform, only went public on October 14 of last year. This means it missed much of the euphoric rally in tech stocks during the height of the pandemic. As such it is down about 47% since its IPO opening price, not the 80% levels seen by similar stocks.

That said GitLab still has much to live up to with a heady valuation around 17 times sales. The market is still valuing it this high due to its sustained revenue growth so far, but it remains to be seen whether the slowdown in tech will curtail the speed of business development. Additionally, listeners on the earnings call will want to find out how GitLab is competing with the heavyweights of its industry. These include Microsoft-owned GitHub, Atlassian's BitBucket and IBM. 

Shares of GitLab collapsed more than 20% in the past week and a half after JPMorgan cut GTLB to Neutral. This amounted to a reversal as it began the year with a Overweight rating on the software firm. Though the bank views the company in a positive light, it said its high-multiple valuation was cause for concern. 

"GitLab (GTLB) stock currently trades at ~16x EV/CY23 revenue, the second highest valuation across the entire software universe, only below Snowflake (SNOW)," wrote analyst Pinjalim Bora. Despite the analyst's hesitation, however, GTLB stock was still handed a $63 price target for the end of next year. That allows for 30% upside based on last Friday's closing price.

Chase Coleman's Tiger Global Management increased its stake in GitLab by nearly half during the second quarter. It now owns 778,000 shares. RBC Capital, Needham, Goldman Sachs, Scotiabank and UBS all have positive ratings on the stock. The most recent analyst action came in the second half of August when RBC Capital raised its price target from $66 to $75.

GitLab stock forecast

The JPMorgan downgrade has had a serious effect on the GTLB share price. The stock dropped from the low $60s to the high $40s. In so doing it has broken through both the 100-day moving average and the 50-day moving average. The 50-day moving average had been leading its 100-day counterpart as the stock had been in an uptrend since May 24, but that may be over for the time being.

To signal a rally, GTLB will need to break above $70, but that may be difficult in the current macro climate. Long-term support can be found at $33.

GTLB daily chart