On a day in which the stock market is rallying on early reports that the omicron variant of the coronavirus might be less severe than feared, recent initial public offering (IPO) stock GitLab (GTLB -8.64%) is falling 7% as of 3:10 p.m. ET. This comes in spite of a solid earnings update, the first since the company became a publicly traded stock.
As for the quarterly numbers for the third quarter of fiscal 2022 (the three months ended Oct. 31), they were quite good. Revenue was up 58% year over year to $66.8 million, and the number of customers spending at least $100,000 per year on GitLab's software development platform increased 73% from a year ago to 427. The outlook for the fourth quarter was solid as well, calling for another sequential sales increase to at least $69.5 million.
After a successful IPO in mid-October, GitLab reported having $925 million in cash and short-term investments on balance and no debt. That bodes well for the small firm's long-term prospects as it goes head-to-head with its larger software development operations peer GitHub -- which was acquired by Microsoft back in 2018.
Software development, management, and collaboration services like GitLab are in high demand right now. Project management and workflow tools like Asana are on a tear, but GitLab focuses specifically on developers and helping them build better software offerings.
Nevertheless, this is a high-growth but richly valued stock, so wild swings up and down are to be expected. Even after the drop paired with the impressive quarterly growth, GitLab is valued at 48 times expected current-year sales. With that kind of premium price tag and the company still operating at a loss (albeit on purpose as it attempts to maximize its expansion now and profit later on), shares are going to be prone to sharp twists and turns.
Tread lightly here if you aren't interested in highly volatile growth stocks, or if you aren't interested in staying invested for the long term. But if you think software development will continue to grow for years to come, GitLab is absolutely a stock you should keep on your radar right now.