Guggenheim Reiterates Buy Rating on $GTLB, PT $70; Ahead of earnings
Analyst comments: "Key Message: We expect GitLab to easily exceed F3Q26 consensus top- and bottom-line estimates, due in part to what we believe is de-risked second-half fiscal 2026 guidance set by former CFO Brian Robins. Despite mixed checks, we see upside flowing through to full-year FY26 and expect F4Q26 guidance to come in line.
In our plausible scenario, we model total revenue growth of 26% versus consensus at +22% (or over 3% potential upside, slightly less than the 4% in F2Q), including subscription growth of 27% (vs. consensus +23%) and SaaS growth of +35% (vs. consensus +28% and +39% in F2Q). On the F2Q26 earnings call, CEO Bill Staples outlined three objectives to drive GitLab’s next leg of growth, including both sales and product-led go-to-market motions to: 1) drive acceleration in new logos, 2) accelerate expansions, and 3) improve platform capabilities across core DevOps, security, and AI. These initiatives are additive and do not require changes to sales commission structures. However, they represent change nonetheless, and we expect the benefits to manifest primarily in FY27.
Management has factored in some modest near-term disruption as a result, as well as continued softness in small and medium-sized businesses (about 8% of revenue), which are incorporated into guidance. On the other hand, management noted that paid seats have grown double digits year over year (including Duo seats) and at an accelerating rate over the last four quarters, which we believe could continue, while pricing is a modest tailwind this year and a modest headwind next year (~3 percentage points of growth).
Altogether, we ultimately see GitLab growing 26% in FY26E and 24% in FY27E, including SaaS growth exiting F4Q at 36% and 32% in FY27E, making for an underappreciated high-growth asset coupled with 20%+ free-cash-flow margin. Go-to-market and product tailwinds, including the Duo Agent Platform (which management expects to reach general availability by fiscal year-end), could provide further potential upside. Maintain Buy and $70 price target."
Analyst: Howard Ma
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