GitLab's Fundamentals Clash with Market Skepticism Over Growth Durability

What happened

GitLab's stock has declined approximately 60% over the past year, reflecting investor concerns about slowing growth despite the company reporting solid fundamentals, including over 25% revenue growth and expanding margins. The company is transitioning from hypergrowth to disciplined scaling, with its platform consolidation strategy resonating among enterprise customers, as shown by 13% of its 10,000+ customers paying over $100,000 annually and a DBNRR of 119%. However, critical metrics from recent filings reveal deceleration, with DBNRR stepping down from 122% to 119% and RPO growth slowing to 27% YoY, indicating persistent expansion pressures. Additionally, gross margin has declined to 87% due to higher third-party hosting costs, and fixed commitments of $242.6 million pose risks if growth falters, undermining the optimism in external analyses. The market's failure to reward improving fundamentals underscores the need for tangible proof that AI monetization through GitLab Credits can drive paid overage and stabilize key performance indicators.

Implication

The divergence between GitLab's operational performance and stock price highlights deep-seated investor skepticism about sustainable growth, as decelerating expansion metrics like DBNRR and RPO growth signal underlying pressures. For a valuation rerating, GitLab must prove that its AI features, now generally available with usage-based pricing, convert into measurable revenue lift and halt the decline in DBNRR, which is critical for pricing power. Fixed hosting commitments of $242.6 million increase operational leverage risk, making gross margin trends a vital watch point; further compression could indicate deteriorating unit economics even if non-GAAP profits hold. Public-sector demand recovery and SMB segment improvement are necessary to support broader growth, as market narratives emphasize softness in these areas impacting pipeline conversion. Until next quarter's results show DBNRR stabilizing above 118% and RPO growth re-accelerating toward 30% YoY, aligning with the DeepValue report's thresholds, the prudent approach is to avoid new positions and monitor for early warning signs.

Thesis delta

The Seeking Alpha article argues for undervaluation based on GitLab's fundamentals, but the DeepValue report's critical analysis highlights that without proof of AI monetization and stabilization of decelerating metrics, the risks of expansion erosion and margin pressure persist. This reinforces the core thesis that GitLab remains in a 'wait' phase, requiring concrete evidence from upcoming financial disclosures before any upgrade in investment rating is warranted.