GitLab's (GTLB +1.01%) share price plunged despite the company reporting another strong quarter of revenue growth and vastly improved operating margins. However, investors continue to nitpick at the slightest issues, such as continued weakness in its smaller SMB (small to medium-sized business) segment, to justify their bearish case that the company will be an artificial intelligence (AI) loser. The stock is now down about 34% on the year, as of this writing.
Let's take a closer look at GitLab's recent results and future prospects, and why it may be time to load up on the stock.
NASDAQ: GTLB
Key Data Points
Solid revenue growth continues
For those unfamiliar with GitLab, the company operates what it known as a DevSecOps (development, security, and operations) platform, which is a secure environment for organizations to develop software. However, it has been transitioning into a more comprehensive end-to-end software development lifecycle (SDLC) platform.
While investors have pegged the company as an AI loser that will see pressure as AI replaces coders, GitLab CEO William Staples said that AI was increasing its total addressable market because AI lowers the barrier of entry to developing software. Meanwhile, by now offering an automated end-to-end solution, it will be able to capture this opportunity.
The heart of GitLab's shift to an SDLC platform is its Duo Agent platform, which can deploy AI agents to help software developers with various tasks. The company said this would become widely available to all customers in the coming weeks. This will also be a key component of its shift to a hybrid seat plus usage-based business model.
Turning to its results, GitLab once again produced strong quarterly revenue growth. For its fiscal 2026 Q3 (ended Oct. 31, 2025), revenue jumped 25% year over year to $244.4 million. That was well ahead of the company's forecast for revenue of between $238 million and $239 million. It was the ninth straight quarter that GitLab has posted year-over-year revenue growth of between 25% to 35%.
| Quarter/Fiscal year | Revenue | Growth (YOY) |
|---|---|---|
| Q3 2024 | $149.7 million | 32% |
| Q4 2024 | $163.8 million | 33% |
| Q1 2025 | $169.2 million | 33% |
| Q2 2025 | $182.6 million | 31% |
| Q3 2025 | $196.0 million | 31% |
| Q4 2025 | $211.4 million | 29% |
| Q1 2026 | $214.5 million | 27% |
| Q2 2026 | $236.0 million | 29% |
| Q3 2026 | $244.2 million | 25% |
Data source: GitLab earnings reports. YOY = year over year.
Subscription revenue climbed by 27% year over year to $223.3 million, while license revenue edged up by 1% to $21.1 million.
The company continues to see solid growth within its existing customer base, with dollar-based net retention of 119%. Any number above 100% means that customers who have been with the company for more than a year are increasing their spending.
GitLab's growth continues to be driven by large enterprise customers. The number of customers with $100,000 or more in annual recurring revenue (ARR) jumped by 23% to 1,405. It said it is seeing softness in its SMB segment, but that accounts for just 8% of its ARR. It noted strength in international markets but said that was offset by federal government weakness stemming from the government shutdown.
GitLab's adjusted operating income soared 69% to $43.7 million, as operating margins improved to 17.9% from 13.2% a year ago. Its gross margin came in at 87%, down from 89% a year ago. Adjusted EPS rose 9% to $0.25, which was at a slower pace than operating income growth due to a higher tax bill.
The company generated $27.2 million in adjusted free cash flow in the quarter compared to only $9.7 million a year ago. It finished the quarter with over $1.2 billion in cash and short-term investments and zero debt.
Looking ahead, GitLab upped its full-year fiscal 2026 forecast for revenue to between $946 million and $947 million, up from prior guidance of $936 million and $942 million. It also boosted its EPS guidance, taking it to $0.95 and $0.96, up from an earlier forecast of $0.82 to $0.83.
For fiscal Q4, it forecast revenue to be between $251 million and $252 million, representing approximately 19% growth. It said federal and SMB weakness accounted for its guidance.
Image source: Getty Images.
Time to load up
The decline in GitLab's stock price is a major overreaction. While the company is seeing some softness in the SMB segment, that's just 8% of its ARR, while its government business should start to pick back up now that the shutdown is over. This would be the equivalent of investors punishing Palantir Technologies' stock because its international commercial revenue was weak.
It should also be noted that GitLab is getting a new CFO in January, and almost every time any company gets a new CFO, they issue very conservative guidance ahead of time.
To me, this is a classic case of failing to see the forest for the trees. While the company continued to see some SMB softness, its overall results were great. It grew its revenue by 25%, and its operating margins expanded by 470 basis points. Meanwhile, while there could be some disruption from it shifting its go-to-market approach and transitioning to a hybrid seat-plus-usage-based mode, but these are both strong, long-term positives that should drive growth.
Turning to valuation, the stock is in the bargain bin, now trading at a price-to-sales multiple of just 5.5 times fiscal year 2027 (ending January 2027) analyst estimates, and excluding its net cash, its enterprise value-to-sales ratio is only about 4.5 times.
For a company with a recurring revenue stream with nearly 90% gross margins and growing revenue at a mid-20% clip, that's insanely cheap. As such, I'd be loading up on this dip, and the stock is a prime candidate to rally next year.
