Gitlab (GTLB) Conference Call Notes (UPST, SHOP, ADBE, TTD, OKTA News)

HAPPY TUESSSSSDAY

Today we’re covering some news stories about Upstart, Shopify, Okta, and The Trade Desk then diving into my notes from GitLab’s (GTLB) earnings call last week.

TLDR I was very impressed, opened a position, and tend to DCA in overtime keeping it a “large” position in my portfolio.

BUT FIRST

This newsletter would not be possible without Commonstock. In my mind, Commonstock is like Twitter without the bots and people trolling you because they think they are the ruler of all opinions on stocks/investing. This isn’t an advertisement, but I love the platform so much that I badgered the team so much over the last couple of years that they basically had to give me a job so I’d stop bothering them.

In all seriousness, I joined because the team is focused on improving the world’s financial health by creating a platform that amplifies transparency and accountability alongside people’s opinions on everything from crypto to stocks.

My portfolio is linked securely on Commonstock and you can always see my positions, trades, and performance at this link.

Portfolio News

Upstart (UPST) is down 7% after Wedbush downgraded it to underperform with a $75 price target (Down from $110). The analyst noted weakening delinquency trends. This doesn’t concern me at all and I intend to keep dollar-cost averaging (DCA) into UPST so I’ll take lower prices due to short-term fears all day!

Shopify (SHOP) was down 12% yesterday after an announcement that Google intends to offer “Last Mile Fleet Solution” to help business owners optimize deliveries/logistics. At this point, I’m not concerned and SHOP will move towards the top of my list for new contributions if prices drop more from here. If we see Shopify’s results suffer in the next few quarters, then it could indicate they’re losing part of their competitive advantage. I’ll research this new offering from Google and share it in a future email.

Okta (OKTA) is currently down 8% pre-market after hacking group Lapsus$ posted screenshots on its Telegram claiming to have hacked Okta. Okta has stated it sees no signs of a breach. As of right now, I’m not concerned and I certainly trust Okta’s track record + management to quickly fix anything (and make the platform better) if there was a breach. Okta is currently at the top of my list to buy when my next contributions hit. I talked about that in yesterday’s email.

Adobe (ADBE) reports earnings this afternoon. I own a starter position in Adobe because it is a fantastic company with a very long track-record of success. I don’t intend to add to my position because its multiple is a bit high considering forward growth estimates and I believe there are better opportunities elsewhere (see link to yesterday’s email). I’d start to get interested in adding shares if the P/E gets down to around 29-30. It’s currently at a blended P/E of 35.3. That’d be about a 20% drop from here down to around $390/sh. I have no idea what happens with earnings.

The Trade Desk (TTD) launches new certified service partner program for SMBs. “This program expands self-service access to The Trade Desk’s demand-side platform, as client demand for data-driven advertising continues to rise. As part of this announcement, Goodway Group becomes The Trade Desk’s first certified service partner to help meet this rising demand.” I own TTD and won’t be selling my shares anytime soon, but I’d love for the multiple to come down a bit before adding.

GitLab (GTLB) Conference Call Notes

After Gitlab’s earnings last week I sent an email saying I intended to buy shares with the new contributions that were coming into my account (link). I ended up purchasing shares on Tuesday and Wednesday and the position is up nicely. It’s currently a large position for me and I have some catching up to do in building other positions so I won’t be buying more in the next month or two but I’m very bullish on the company’s future.

Here are my notes from the earnings conference call

CEO Sid Sijbrandij opening remarks:

Beat revenue expectations with revenue of $77.8 million, 69% year-over-year

Dollar-based net retention rate exceeded the 152% we reported in S-1 filing

Strength was broad-based across enterprise, mid, and SMB customers

Ultimate remains fastest growing tier of product offering

Strength indicates the market is moving from DIY DevOps to a DevOps platform which plays to GitLab’s strength

Gartner Market Guide for value stream delivery platforms states that by 2024, 60% of organizations will have switched to a platform approach, up from 20% in 2021

Management believes “the source of our product differentiation is our platform approach to DevOps.”

“We believe our single application helps companies to deliver software faster, improve organizational efficiency and reduce security and compliance risk. The DevOps platform also enables our customers to manage and secure the entire DevOps workflow across any hybrid and multi-cloud environment.”

“Acquisition of Opstrace, a pre-revenue open-source observability solution will allow GitLab to offer robust monitoring and observability capabilities that will enable organizations to lower incident rates, increase developer productivity and reduce mean time to resolution.”

Management believes DevOps platform addresses a $40B market opportunity. Bain & Company study showed 90% of companies believe DevOps is a priority but only 12% believe they have mature DevOps practices

Added over 500 net new base customers. New logos/expansions include U.S. Army, Deutsche Telekom and Travis Perkins.

Travis Perkins expansion: “Travis Perkins is the U.K.'s largest distributor of building materials. They accelerated their migration to the cloud using GitLab Premium by consolidating their software to it. Doing so increased their velocity, cut down overall cost by 20% and it allowed their team members to focus on building new customer-facing digital services and capabilities instead of managing their toolchain. This quarter, they upgraded from Premium to Ultimate licenses and more than doubled the number of users on the system. This will expand usage of GitLab to their security teams and allow development operations and security to collaborate on a single DevOps platform.”

CFO Brian Robbins remarks:

Revenue is the key metric to evaluate the health and performance of the business. Because approximately 90% of revenue is ratable, it serves as a predictable and transparent benchmark for how we are growing.

“Cohorts from six years ago are still expanding today. This is a testament to how we're constantly adding value to our customers. Most of our customers start using GitLab with small teams with just one to two stages of our platform. From there, they typically increase their spend with us 2x over the first year as our platform is adopted across multiple teams. Customers then continue to increase their spend as our platform expands to more teams across their organizations or they upgrade to a higher paid tier.”

“We are also effective at retaining our customers. When our customers deploy the DevOps platform, it becomes a central platform from which all their DevOps workflows originate from, making it sticky and difficult to replace. The result is that we ended our fourth quarter with a dollar-based net retention rate exceeding 152% which is higher than the disclosure we provided in our S-1 at the time of our IPO.”

“Our platform is offered with a free version and two paid subscription tiers which we call Premium and Ultimate. Our paid tiers are priced per user with different features per tier. Every user within an organization is on the same plan which helps keep our business model transparent and easy to understand. The Ultimate tier is our fastest-growing tier, now representing 37% of our annual recurring revenue for the fourth quarter compared with 26% of annual recurring revenue in the fourth quarter of FY 2021 and growing in excess of 100%. In FY '22, our non-GAAP gross margin held steady at 89%. Over time, we expect this to compress as our SaaS offering becomes a larger portion of our business and associated hosting costs will increase.”

Over 4,500 customers with ARR of at least $5,000 per customer compared to over 4,000 customers in the prior quarter and over 2,700 customers in the prior year. This represents a year-over-year growth rate of approximately 67%. Currently, customers with greater than $5,000 in ARR represent approximately 95% of our ARR.

Over 490 customers with ARR of at least $100,000, up from 420 customers and over 280 customers compared to the prior quarter and year, respectively. This represents a year-over-year growth rate of approximately 74%

39 customers with ARR of at least $1 million compared to 20 customers at the end of the prior fiscal year which represents a year-over-year growth rate of 95%.

Total RPO grew 95% year-over-year to $312 million.

Non-GAAP gross margins were 89% for the quarter which compares to 90% in the immediately preceding quarter and 89% in the fourth quarter last year. As we move forward, we're estimating a moderate reduction in this metric due to the rapid year-over-year growth rate of our SaaS offering

Non-GAAP operating loss was $27.4 million or negative 35% of revenue compared to a loss of $22.2 million or negative 48% of revenue in Q4 of the last fiscal year. Q4 includes $5 million of expenses related to our JV and majority-owned subsidiary.

Guidance:

For first quarter of FY 2023, we expect total revenue of $77 million to $78 million, representing a growth rate of 54% to 56% year-over-year.

We expect a non-GAAP operating loss of $38.5 million to $37.5 million.

We expect a non-GAAP net loss per share of $0.28 to $0.27, assuming 147 million weighted average shares outstanding.

For the full year FY 2023, we expect total revenue of $385.5 million to $390.5 million, representing a growth rate of 53% to 55% year-over-year.

We expect a non-GAAP operating loss of $142 million to $138 million.

We expect a non-GAAP net loss per share of $1.02 to $0.97, assuming 148 million weighted average shares outstanding.

Our annual FY 2023 guidance implies non-GAAP operating margin improvement of almost 300 basis points year-over-year at the midpoint of our guidance ranges. Over the longer term, we believe that a continued targeted focus on growth initiatives and scaling the business will yield further improvement in unit economics.

Q&A

Question about where strength in 152% net-dollar retention rate is coming from

Answer: Ultimate is driving a lot of upsell because of the advanced security capabilities. Create and verify are used heavily; so they are important too. Apart from create, verify and secure, we see growth in packaging and release. Packaging, for example, is replacing JFrog Artifactory at more and more customers.

Question on acquisition of Opstrace, the pre-revenue open source application in the category of observability.

Answer: Observability lets you close the loop. You plan to make something, you make it, you roll it out and then you see how it does. So it's a really important element of a DevOps platform and we're really early. But because it's so important, we wanted to accelerate how fast we got there and we love the team and the product that Opstrace already built. So we acquired them to rebuild that inside GitLab and we think that closing that loop will help our customers achieve better business outcomes. If you get feedback faster, you reduce your cycle time and you get better outcomes. And it's really important to note that we'll do it in an iterative fashion. So in the beginning, our solution will not so much compete with existing vendors but with nonconsumption. People haven't set up monitoring yet and we'll start from a simple product and work with our users and customers contributing to expand the functionality over time.

Links to company news articles

Upstart downgraded by Wedbush

Shopify - Google “Last Mile Fleet Solution”

Okta potential security breach

Adobe Investor Relations Page

The Trade Desk Launches New Certified Service Partner Program for Small and Medium-Sized Businesses

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