It’s been a tough ride for GitLab investors. Since shares peaked last August above $71, the stock has fallen significantly, reaching a low near $26 in early May. Investors who have hung onto their shares may soon be vindicated, though.
The company on June 5 reported better-than-expected fiscal first-quarter earnings results, sending shares soaring. The surging share price wasn’t the only thing that caught my eye. The move also means shares did something important that investors shouldn’t ignore.
GitLab Earnings Results Impress
The popular developer software company didn’t turn the corner to profitability last quarter but made more progress than Wall Street analysts anticipated.
The company reported top-line sales of $127 million, up 45% from last year. GitLab’s loss per share was 6 cents in the quarter. Analysts were expecting $118 million and a loss of 14 cents per share, so management over-delivered on both the top and bottom lines.
GitLabs rallied over 30% following its FYQ1 2024 earnings report, but it wasn’t just solid quarterly sales that caught investors’ eyes. The big news was that GitLab boosted its full-year outlook. Management expects sales of at least $541 million, up 28% from last year and above consensus projections for $533 million. It’s also forecasting a net loss of 18 cents to 14 cents per share, outpacing estimates for a 26 cents per share loss.
The company’s dollar-based retention rate, a measure of same-user year-over-year revenue, was 128% in the quarter. Some 760 customers were doing $100,000 in annual recurring revenue in the quarter, up 39% from one year ago.
As for progress toward profitability, GitLab’s non-GAAP operating margin improved by almost 17%. CFO Brian Robins said on the company’s earnings conference call that its goal is to “achieve [free] cash flow breakeven” in fiscal 2025.
GitLab’s Shares Do Something Important
It’s uncommon for shares to rally by nearly one-third in one day, but that’s not the most exciting thing that happened today. The rally in its shares accomplished two things investors want to pay attention to.
First, the rapid run-up in GitLab stock lifted its share price back above the 200-day moving average. The 200-DMA is a vital trend line many investors use to signal bullishness or bearishness. As a result, recapturing the 200-DMA may encourage investors interested in the stock to buy. It may also force those betting on shares to fall to cover their short positions. According to Yahoo!Finance, there were nearly 10 million shares held short as of mid-May, representing four entire days of average daily trading volume.
Secondly, the move above the 200-day moving average today follows a gap lower in March, potentially creating a bullish island reversal -- a somewhat rare chart pattern that may signal higher prices.
How much higher could GitLab’s shares go? If it doesn’t retreat to fill today's gap, the first stop would be testing the downtrend line near $50. The low $70s will be my next target if it closes above that level.
