3 things GitLab’s wild IPO pricing says about public markets

Sitting here waiting for GitLab to actually start trading, I’m still digesting the company’s IPO price.

When we first caught up with GitLab’s IPO filing, TechCrunch did a little math magic and decided that it wasn’t unlikely that the company would manage to secure a $10 billion valuation in its debut.

At that price point, everyone looked set to make a killing; even the company’s most recent investors would see a quick return on their final capital into the DevOps unicorn. The company was last valued on the private markets at around $6 billion in a secondary sale of its equity a year ago,¬†and the last primary price put on GitLab was less than $3 billion back in 2019.

The company surpassed our calculations.

From an initial IPO price range of $55 to $60, GitLab raised its targets sharply to $66 to $69 per share. It was not a surprise to see the company aim higher in its IPO pricing given that its first numbers felt a little soft. The scale of the gap between the company’s first and second IPO price range, however, was a jolt.

Then the company went and priced at $77 per share, once again air-gapping its preceding valuation estimate.

GitLab’s 143,534,821 shares outstanding at its IPO price were worth $11.1 billion. Doing a bit more math, the company’s fully diluted valuation lands around the $12.6 billion mark.

The company’s IPO is, therefore, a success from a fundraising and valuation perspective; if the company’s stock pops sharply when it does begin to trade, apportion mispricing blame to both investment bankers and the former startup’s private backers that valued the company at less than $3 billion back in late 2019.

Briefly, here’s what I’m thinking when we consider the company’s IPO pricing:

  • Revenue growth is good, but revenue growth with top-tier SaaS metrics is god tier: Working to figure out just why GitLab was so far off in its first IPO price range is not easy. There is not a single answer. But I reckon that GitLab’s excellent SaaS metrics likely helped because they paint a picture of a company with much growth baked into its results. For example, in 2020, GitLab had net retention of 148%. During the pandemic. That number scaled to 152% in H1 2021. It’s going to prove hard to slow GitLab, regardless of what happens economically. So, in a sense, net retention is an effective hedge against macroeconomic slowdown. Which did not harm GitLab’s IPO pricing.