GTLB: AI Adoption And Share Buybacks Will Support Future Upside

Our fair value estimate for GitLab has been revised down from $51.15 to $34.56, reflecting analysts' lower long term growth, profitability, and future P/E assumptions following reduced FY27 forecasts, competitive concerns around AI coding tools, and more cautious outlooks on demand and execution.

Analyst Commentary

Street research has turned more cautious on GitLab, with a broad reset of FY27 expectations and a wide range of revised price targets. Analysts are weighing solid reported results against concerns around demand, competition in AI coding tools, and execution through what several describe as a transition or stabilization period.

Bullish Takeaways

• Some bullish analysts highlight that recent quarters included revenue beats versus guidance, with one calling out a roughly US$7m beat and another referencing a nearly US$9m beat against the midpoint, alongside a non GAAP operating margin of 20.5% that was roughly 500 bps above guidance.
• Customer quality metrics are a support for more constructive views, with commentary pointing to customer churn at a 4 year low and the highest net new ARR in company history. Bullish analysts see this as helpful for longer term growth potential even as forecasts are reset.
• Several firms that still rate the stock positively point to GitLab passing US$1b in annual recurring revenue and continuing to view the company as a long term share gainer. They are adjusting their models to updated growth and profitability assumptions rather than abandoning the thesis.
• Some bullish analysts also flag company actions such as the new US$400m share buyback program as a potential source of near term support. They see room for improvement if management can address what one firm describes as structural concerns and execution questions.

Bearish Takeaways

• Bearish analysts focus on what they describe as disappointing FY27 guidance, a conservative growth framework near 16% versus higher prior expectations, and management characterizing FY27 as a year of stabilization, which they see as limiting upside to their models.
• Competition is a central concern, with repeated references to pressure from Microsoft GitHub and new AI code tools from OpenAI and Anthropic Claude Code, as well as worries that heavy investment in sales and AI may not translate into attractive returns or developer seat growth as quickly as hoped.
• Execution risk is a common theme, including uneven go to market performance, frequent management changes, heavier sales expenses, and what some describe as mishaps over the last couple of years. This has led several firms to downgrade ratings and call the next few quarters a show me period.
• Several bearish analysts argue that sentiment on software in general is weak and that GitLab in particular faces a tough setup, with guidance repeatedly coming in below consensus, sector multiple compression, and investors waiting for more visible AI revenue contribution before revisiting the stock.

What’s in the News

• OpenAI is reported to be developing an alternative to Microsoft GitHub, which is a direct competitor to GitLab. GitLab shares were reported down 8.6% after hours on the news (The Information).
• Barron’s highlighted GitLab, alongside Bill, in a discussion of stocks that could benefit from potential technology sector buyouts (Barron’s).
• GitLab announced a share repurchase program authorizing up to US$400m of Class A common stock repurchases, funded from existing cash, cash equivalents, short term investments, and ongoing cash from operations.
• The company issued earnings guidance for the first quarter and fiscal 2027, with expected revenue of US$253.0m to US$255.0m for the quarter and US$1.099b to US$1.118b for the year.
• GitLab expanded its Managed Service Provider Partner Program and brought GitLab Duo Agent Platform to general availability, aiming to support AI driven workflows and managed deployment options across multiple regions and environments.

Valuation Changes

• Fair Value: revised down significantly from $51.15 to $34.56, reflecting lower modeled assumptions for growth, profitability, and future P/E.
• Discount Rate: risen slightly from 8.41% to 8.49%, which implies a marginally higher required return for GitLab’s equity.
• Revenue Growth: trimmed from 17.84% to 15.36%, indicating more cautious expectations for future dollar revenue expansion.
• Net Profit Margin: adjusted from 12.75% to 11.73%, indicating a modest reduction in projected long term profitability.
• Future P/E: reduced from 62.74x to 48.51x, indicating a lower valuation multiple applied to expected future earnings.