GitLab's Strong Quarter Silences Skeptics

GitLab (GTLB) reported fiscal third-quarter results that smashed expectations, sending shares higher. The DevSecOps platform saw new annual recurring revenue (ARR) surge 42% year over year, its fastest pace in years, while calculated billings jumped 24%, doubling last quarter's growth. The company also recorded its largest gross bookings ever, with first-order count more than doubling to 1,700.

Revenue came in at $286.3 million, up 21% year over year and well above the company's guidance of $272-$274 million. Subscription revenue grew 21% to $258.3 million, and the company saw particular strength in large deals, with transactions over $500,000 growing more than 150%. Its high-end Ultimate tier also jumped 35% and now represents 59% of ARR.

Management raised full-year guidance, now expecting fiscal 2027 revenue of $1.129-$1.133 billion (18-19% growth) and adjusted EPS of $0.85-$0.87, up from prior forecasts. The company also introduced its new Flex commercial model, which allows customers to commit to an annual dollar rate that can be shifted across seats, consumption credits, and new capabilities. In just six weeks, customers have already committed over $20 million to the program.

Perhaps most notably, GitLab is thriving in the AI era, contrary to bearish predictions. Management noted that AI is lowering the barrier for software development, driving demand for its platform, and creating new monetization opportunities across the software lifecycle. This is reflected in the company's dollar-based net retention rate of 117%, which showed its first sequential improvement since 2024.

GitLab's results are a powerful signal that the company is not only weathering the AI disruption but actually benefiting from it. The bears had argued that AI would commoditize software development, but GitLab's accelerating ARR growth and record bookings suggest the opposite: AI is expanding the market for DevSecOps tools. This is a critical validation for the company's long-term thesis.

The reacceleration in new ARR growth (42% YoY) is particularly important because it indicates that GitLab is gaining market share and that its go-to-market strategy is working. The strong performance in large deals and the public sector rebound also suggest broad-based demand across customer segments. If this momentum continues, GitLab could be on the cusp of a sustained growth phase.

From a valuation perspective, the stock still looks attractive despite its recent rebound. Trading at under 6.5 times forward sales (based on fiscal 2028 estimates) with over 15% of its market cap in cash, the market is not fully pricing in the potential for reacceleration. The Flex model, while causing some short-term revenue recognition distortions, could improve retention and drive long-term growth.

However, investors should be aware of the risks. The Flex model's impact on revenue recognition could create volatility in reported metrics, and the company has not yet adjusted its guidance for this. Additionally, competition in the DevSecOps space remains intense, with players like Atlassian and Microsoft's GitHub all vying for market share. But for now, GitLab's execution is proving the skeptics wrong.