On Wednesday, Scotiabank (TSX:BNS) showed confidence in GitLab Inc (NASDAQ:GTLB) by raising its price target on the stock to $75 from $65, while keeping a Sector Outperform rating.
The adjustment follows GitLab’s strong second-quarter performance, which showed a notable year-over-year increase in calculated Remaining Performance Obligations (cRPO) of 42%, an acceleration from the first quarter.
The bank anticipates that investors will seek evidence of sustained bookings strength, considering the solid second-quarter results. There is an expectation of a slight outperformance relative to the consensus 36% cRPO estimate. Additionally, a modest revenue outperformance of about 2-3% is expected, along with a potential small upward revision to GitLab’s growth outlook.
Despite the positive forecast, Scotiabank acknowledges that Net Revenue Retention (NRR) could remain under pressure, having decreased to 126% in the last quarter from 129% in the first quarter. The bank will be closely monitoring management’s commentary on the possibility of NRR stabilization. Seat expansion, which accounted for approximately 40% of the Dollar-Based Net Retention Rate (DBNRR) in the second quarter, is considered a crucial metric, especially as concerns about slowing seat growth persist.
Scotiabank is also focusing on several key areas including GitLab’s Annual Recurring Revenue (ARR) from its Ultimate tier, which was 47% in the last quarter, and developments with Duo following GitLab’s notable customer wins and the general availability of Duo Enterprise in August. Management's expectations for the impact of Premium pricing, which was previously anticipated to provide a $10-$20 million tailwind, will also be under review.
The bank’s outlook on operating margins (OMs) is optimistic, modeling a 10% increase and anticipating modest upside. Looking ahead to the next year, Scotiabank believes the consensus estimate of 25% growth is achievable if the second-half bookings continue to demonstrate strength. The new price target of $75 is based on 13 times the enterprise value to projected calendar year 2025 sales.
GitLab Inc. reported a significant 31% year-over-year increase in its second-quarter revenue, totaling $183 million, and forecasts a Q3 revenue between $187 million and $188 million. GitLab's CFO, Brian Robins, has temporarily assumed the role of Interim Chief Accounting Officer.
In other recent news, Cantor Fitzgerald increased GitLab's price target from $60.00 to $75.00, maintaining an Overweight rating based on the company's performance and market position. Other analyst firms such as KeyBanc, TD Cowen, and Needham also expressed confidence in GitLab, raising their price targets and maintaining positive ratings, with Needham upgrading its rating from Hold to Buy. However, DA Davidson maintained a Neutral rating for GitLab.
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