3 things GitLab’s wild IPO pricing says about public markets
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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.
- You can go public with a top-five public multiple: With $232.5 million in annualized revenue (set from a figure recorded in the company’s July 31 quarter), GitLab is worth around 54x its run rate. That’s a top-five multiple, per the Bessemer Cloud Index. More simply, we’re seeing GitLab start life nearly on the SaaS podium, a collection of companies that includes Bill.com and Snowflake, which are impressively valued in multiples terms. The lesson here is that unicorns can go public at not just high multiples, as we noted the other day — they can start right at the top if they have the right numbers. You don’t have to go public and then grind up the ladder. You can just start on the top rung.
- Public markets could be, somehow, warmer than private markets: Watching GitLab double its value from around $3 billion to $6 billion from 2019 to 2020 might have felt warm. But the company just doubled in value again, adding not $3 billion to its worth, but $6 billion. Quadrupling one’s valuation in two years is an impressive pace of value creation. I would hazard historic, but given how some companies are fundraising in the private sphere, that would be a risky claim. Regardless, at minimum, we can say that public markets are as welcoming to high-growth SaaS as private markets. And perhaps, with this IPO pricing, slightly warmer. We need more data to make a case, but hot dang.
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