GitLab Inc (GTLB) stock is on the rise after Needham analyst Mike Cikos upgraded the company’s rating from Hold to Buy, setting a $70 price target. Cikos’ bullish outlook stems from GitLab’s expanding product offerings and strong enterprise sales.
He highlighted the growing traction of GitLab’s Ultimate tier, driven by features like Duo Pro Enterprise and Dedicated, which cater to the specific needs of large organizations. Cikos expects this trend to continue, driven by a combination of factors:
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Increased Enterprise Adoption:
Larger businesses are increasingly favoring GitLab’s Ultimate tier due to its robust compliance and security features, which are crucial for enterprise-level operations.*
Premium SKU Pricing Changes:
Price adjustments to GitLab’s premium offerings are expected to contribute significantly to revenue growth, providing a tailwind for the company’s fiscal 2026 performance.*
Strong Incremental Margins:
GitLab’s impressive incremental margins, currently around 40%, support the company’s ability to surpass revenue expectations for the upcoming October quarter.Furthermore, Cikos emphasized that the debate over the Premium vs. Ultimate tiers is becoming less relevant as enterprises prioritize the comprehensive features offered by Ultimate. Data from GitLab’s recent second quarter of fiscal 2025 shows that seven out of the company’s top 10 deals were for Ultimate, and 65% of new revenue from customers spending over $100,000 came from this tier. Innovations like Dedicated and Duo Pro, exclusive to Ultimate, further enhance its appeal.
Looking ahead, Cikos believes GitLab’s ability to cross-sell and expand within enterprise accounts, which have larger budgets than smaller businesses, offers significant growth potential. He projects that GitLab could exceed subscription revenue estimates for the third quarter of fiscal 2025 and beyond, driven by factors like:
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Premium Price Increase:
The recent price increase for GitLab’s premium offerings will contribute to continued growth.*
Improved Customer Retention and Churn:
GitLab’s focus on retaining customers and reducing churn will further boost its revenue trajectory.*
Operating Margin Expansion:
Cikos anticipates operating margin expansion due to cost discipline and leverage in the subscription model. GitLab’s solid margins are evident in its fiscal 2024 performance, where revenue grew by $155.6 million, translating to an adjusted operating profit of $85.8 million.While GitLab competes with Microsoft’s GitHub in the large and growing DevOps market, Cikos believes GitLab has a competitive edge due to its focus on security and compliance. The company’s flexible deployment options, catering to enterprises at different stages of their cloud journey, further strengthen its position. As a neutral vendor, GitLab appeals to businesses seeking to diversify their tech stack and reduce dependency on Microsoft. Cikos anticipates GitLab will continue to expand its public sector presence, benefiting from recent product launches and federal security certifications.
As of Monday, GTLB stock is up 0.48% at $55.61.
