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📮The Sunday Newsletter archive

Powering The Innovative World

Remember this week’s most promising IPO? It was iFIT, one of Peloton’s ($PTON) biggest competitors. But you can’t buy the stock yet because the IPO never happened. The volatility storm forced the company to put its IPO plans on ice. And because timing plays a huge role in the success or failure of an IPO, iFIT probably made the right decision. But volatility hasn’t stopped all companies from planning to go public. Let’s look at the bravest and most promising one.

If you’re a coder you’re probably familiar with GitLab ($GTLB), it has 30 million users after all. But if you’re not, this is one of the top DevOps (a compound of “software development” and “IT operations”) platforms. It brings together development, operations, IT, security, and business teams, so they can work on a single system and release software faster. In fact, the company says its platform reduces software development cycle times from weeks to minutes. But if you don’t believe the company, the numbers speak for themselves.

In the first half of the year, revenue jumped 69% y/y to $108 million and operating margin improved significantly to -51.7% from -140% in 2020. While it’s still deeply unprofitable, it’s moving fast in the right direction and this is extremely important for a high-growth company.

GitLab is a subscription-based platform and as of Q2, it had 3,632 customers with more than $5K of Annual Recurring Revenue. At the same time, its Net Retention Rate clocked in at 152%, one of the highest in the SaaS industry. This is a clear sign that it provides great value to DevOps teams.

Commentary

GitLab faces serious competition from other high-quality DevOps platforms such as JFrog ($FROG) 🐸 or GitHub which was acquired by Microsoft ($MSFT) in 2018. That’s why it spends more than 100% of its revenue on marketing; for the year that ended January 31, it spent 101% of its revenue on sales and marketing. But its ultra-high net retention rates show that its huge investments in customer acquisition actually pay off.

GitLab is one of the leading names in a niche market. The DevOps market is forecast to reach $10.3 billion by 2023 compared to an estimated $2.9 billion in 2017. It’s still a small market but we can see it’s growing fast due to the digital transformation that’s taking place and GitLab is well-positioned to win from this growth.

Assuming the IPO won’t be postponed due to market volatility, GitLab will go public at an $8.2 billion market value and a 42x sales multiple. Microsoft paid roughly 30x sales to buy competitor GitHub, so GitLab’s valuation is definitely pricey. Yet it can be justified if the company continues its strong performance in the coming quarters. Shares start trading on Thursday.

📫Originally posted as part of the Sunday Newsletter
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