On Thursday, Macquarie initiated coverage on GitLab Inc (NASDAQ:GTLB) shares with an Outperform rating and a price target of $90.00. The firm highlighted GitLab's emergence as a key player in the developer security operations (DevSecOps) toolchain market.
According to the analyst, GitLab's AI-powered platform offers significant value across various roles in the software development lifecycle, including managers, developers, and security teams.
GitLab's product, which competes in a market with a total addressable market (TAM) exceeding $48 billion, is highly differentiated from its larger competitor, Microsoft (NASDAQ:MSFT) GitHub, which has an annual recurring revenue (ARR) surpassing $2 billion.
The differentiation is attributed to GitLab's ability to deliver integrated security and compliance, AI integration throughout the software delivery process, and cloud-agnostic solutions. Additionally, GitLab's open core business model and capability to handle enterprise-level workloads set it apart.
The company has shown resilience against macroeconomic headwinds in FY24, with year-over-year revenue growth inflecting positively. Macquarie's outlook is bullish, suggesting that consensus revenue expectations through FY27 are achievable, even as revenue growth is anticipated to decelerate modestly to +22% year-over-year in the medium term.
The valuation of GitLab is also deemed favorable by Macquarie, with the stock trading at a 22% discount to its predicted enterprise value/revenue multiple. The analyst's "Rule of X" regression indicates that GitLab's next-12-months enterprise value/revenue multiple of 10.9x is below the predicted value of 13.9x. This positions GitLab with the seventh-largest discount within the firm's 40-company growth software index.
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