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​GitLab S-1 Analysis: How 7 Key Metrics Stack Up​

GitLab is the first fully remote software company to go public. More than 2000 employees work all over the world and have collaborated to build a massive software business.

GitLab provides a suite of DevOps tools that enable engineering teams to build and deploy software, and then secure it. The breadth of the solution is hard to convey, unless you visit the features page; when printed it’s more than 100 pages long. If that’s not a suite…

Founded ten years ago, the company has scaled rapidly selling their software management suite to small and large companies alike.

GitLab is the third fastest growing software company at IPO, registering 87% revenue growth in 2020, while charting 88% gross margins. This fabulously high gross margin results from many customers hosting their own GitLab suites. In other words, customers pay for their own hardware, rather than using GitLab’s cloud, which reduces the costs of goods sold and boosts gross margin relative to other cloud products.

The sales efficiency of 0.67 implies a 17 month payback period with a contract size of $55k, but the S-1 suggests the enterprise part of the business has been an important focal point. Customers paying GitLab more than $100k have grown 75% year-over-year to 383.

More compelling than simply the growth in count is the disparity in Net Dollar Retention of these large customers. They expanded last year at 283% compared to 148% of the customer base broadly. This implies large customers must land with a large initial deployment, and at some point, roll out the GitLab product company-wide.

To achieve these incredible numbers, GitLab does burn quite a bit of money viewed both through the lens of accrual and cash accounting. Net Income Margin is -120% and Cash Flow from Operations Margin is -48%. The significant delta in the figures suggest customers pre-pay their contracts often.

Using a basic linear regression model considering revenue growth and gross profit, the two factors most highly correlated with forward multiple, we should expect GitLab to trade around a 32x forward multiple. Assuming the company grows at similar levels to the first half of 2021, the model suggests the company should expect a market cap in the $15-17B range.

Congratulations to the entire (distributed) team at GitLab on having developed a massively successful business.

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