It's a David and Goliath tale with a twist. GitLab, a relative newcomer that went public only two years ago, is challenging Microsoft (MSFT), in the fast-growing field of artificial intelligent. It could pose a serious threat to Microsoft in the coming years. GTLB could start to see quarterly profits in the stock as soon as next year.
There's one big caveat. GitLab is backed by Alphabet, the parent company of Google (GOOGL). Its growing ties with Google have become more prominent as GitLab's competition with Microsoft has intensified. Microsoft acquired GitLab’s competitor, GitHub in 2018.
The outlook for GTLB has improved due to the "generative" AI. Company watchers believe that Google will be a valuable ally.
Matthew Hedberg, RBC Capital analyst, said that "from a competitive perspective we think GitLab's GenAI platform is fairly well-positioned to compete with Microsoft's GitHub given its breadth and expanded partnership" in a note sent out recently.
Google Buys GitLab Shares
Google Ventures bought GTLB shares twice in 2023. Google now owns 2,5% of GitLab, a San Francisco-based company. GOOGL's stock price has risen 58% since 2023.
GitLab announced in May that it would use Google cloud computing services for its customers to develop software with AI-assisted features. Users can now create high-quality text, images and video on their own using new generative AI models.
Google's AI-driven assistant "Codey" streamlines workflows to improve software development. Artificial intelligence tools will help software developers develop faster and easier.
GitLab's Chief Executive Sid Sijbrandij revealed at a Goldman Sachs technology conference that the company was building a Codey competitor to Microsoft GitHub AI coding assistance.
Sijbrandij stated, "We are partnering with Google in this area." There are other cloud projects in the works.
Microsoft Targets GitHub
Microsoft, meanwhile, is integrating AI into GitHub thanks to its stakes in OpenAI, a startup.
Microsoft's OpenAI partnership is expected to be a major boost for Microsoft, according to many analysts. Microsoft is one of the AI stocks that investors should be watching.
In a podcast recently, the head for Microsoft's cybersecurity division praised GitHub's abilities.
Charlie Bell, Vice President of Microsoft's Security Division, said: "If you look at GitHub Copilot I would like to call it a security tool." It's an excellent developer tool, which is also a security tool.
UBS analyst Karl Kierstead has a buy recommendation on GTLB.
In a recent letter, he stated that "we're hesitant" to award GitLab a significant premium over its peers due to the early AI story as well as Microsoft and GitHub's competitive momentum. "But we believe that the risks of GitHub Copilot becoming a "GitLab killer" may be overdone."
GTLB Stock: Ukrainian Roots
GitLab, founded in 2014, helps customers create software and deploy applications securely. Its roots date back to 2011, when Ukrainian software engineer Dmytro Zaprozhets developed open-source software collaborative tools.
Sijbrandij, who lives in the Netherlands contributed to the Open Source project in 2012. Sijbrandij, Zaporozhets and others co-founded GitLab in order to create commercial products that allow source code collaboration. They received a boost in 2015 when the startup accelerator Y Combinator made an investment. Y Combinator is responsible for producing tech giants like Airbnb (ABNB), and Dropbox (DBX).
GitLab is a remote company that has existed since its founding. Its employees are spread across the globe. The company employed 1,350 employees in 65 countries when it launched its initial public offer in 2021.
GitLab competes in the crowded market of software development called "DevOps" for developers and operations. Atlassian (TEAM), JFrog (FROG), and Microsoft are not the only formidable competitors. GitLab is also in competition with Cloudbees, a privately-held company.
GitLab is a platform that covers all aspects of the software development lifecycle. GitLab offers a wide range of tools, including project management, source-code management, issue tracking and application security testing.
GTLB Stock: A freemium business model
Sijbrandij, speaking at the Goldman Conference, said: "We envision a future in which we will be the best-in class for every aspect of the DevOp Lifecycle."
He said: "We want to replace all the point solutions that our customers use with better ones." We want to be in a position to host data and models that will be essential for tomorrow's applications - be a software platform that is a one-stop shop for R&D.
Programmers can still use open-source free software.
GitLab is estimated to have 30 million registered users, and over 1 million license users. A TD Cowen Report stated that GitLab began to enforce limits on the number of users it allows in its free tier during the quarter ending July. After a company has five or more users, it must upgrade to the paid version.
The company has sometimes struggled to find a go-to market strategy for enterprise technology. GitLab hired Chris Weber in July as its chief revenue officer. Weber was chief business officer of UIPath. He worked in enterprise sales at Microsoft before.
GitLab reported a 1-cent profit in the quarter ending July, compared to a 15 cent loss one year ago. Revenue rose by 38%, to $139.6 millions. This was 7% higher than the estimates.
The company informed GTLB stock analysts in the quarter of July that it had signed its largest deal ever, a multi-year $30 million deal with a global firm providing financial services.
GitLab, meanwhile, increased its revenue forecast to 31%, up from the previous 28%, in the current fiscal year 2024. Analysts predict that in fiscal 2025 (which starts in April), analysts will make an adjusted profit of 16cents, compared to a 6cent loss for fiscal 2024.
Derrick Wood, TD Cowen's analyst, said in a recent report that he was "encouraged by the traction we are seeing upmarket and across DevOps." "We believe that new AI products, dedicated cloud (products), and price increases will be growing tailwinds over the next few quarters.
GitLab's stock price has risen 8% in 2023.
The entry price for GTLB is 54.60. Buy points are key resistance prices that, once broken, have a tendency for the stock to rise. GTLB also has a Relative strength rating of 82, out of 99 possible. After yesterday's closing, the stock was added to IBD 50 Stock List at position 44.