GitLab's Partner Growth Masks Persistent Expansion Weakness: A Reality Check

What happened

GitLab's expanding enterprise base and AWS partnership, as highlighted in recent news, could bolster ARR growth by enhancing market reach and integration capabilities. However, DeepValue's analysis reveals underlying deterioration, with Dollar-Based Net Retention Rate (DBNRR) declining to 119% in Q3 FY26 and Remaining Performance Obligation (RPO) growth slowing to 27% YoY, signaling weakened expansion momentum. The stock has slumped 56.67% over the past year, reflecting investor skepticism despite management's execution on AI product launches like GitLab Duo Agent Platform. Critical risks include unproven AI monetization via GitLab Credits and fixed hosting commitments of $242.6 million, which could pressure margins if usage-based revenue fails to materialize. Ultimately, the narrative of partner-driven upside must be validated by tangible improvements in DBNRR and RPO growth within the next 3-6 months to alter the bearish sentiment.

Implication

The expanding partner base may provide short-term revenue support, but without a reversal in DBNRR and RPO deceleration, it risks being insufficient to drive sustainable growth. Fixed hosting commitments of $242.6 million create cost inflexibility that could erode margins if AI usage doesn't convert to paid overage, exacerbating profitability concerns. AI monetization via GitLab Credits remains a key unknown; failure to show paid consumption could invalidate the re-acceleration thesis and lead to further stock declines. Investors must closely monitor next quarter's results for DBNRR stabilization above 118% and RPO growth re-acceleration to ≥30% YoY as per DeepValue's upgrade criteria. Entry opportunities should align with DeepValue's attractive price of $28, pending concrete evidence that partnerships translate into measurable expansion and margin resilience.

Thesis delta

The news of partner expansion does not shift the core investment thesis, which remains dependent on GitLab proving that AI monetization drives paid overage and reverses expansion deceleration. Until DBNRR stabilizes at ≥120% and RPO growth re-accelerates to ≥30% YoY, the 'WAIT' rating holds, with partnerships serving as a potential catalyst rather than a fundamental change.