No matter whether you prefer to track the public or private markets, 2022 has proven to be a messy year for software companies.
After a bullish 2021, when investors sent software stocks into the stratosphere, startups rode the same wave of enthusiasm to new heights. Since then, we’ve tracked the pullback in value that software companies have endured, as well as the resulting knock-on effects on startup fundraising and pricing.
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You’re probably tired of the bad news by now. We understand, and to combat the general ominous vibe surrounding startup founders, we’ve been fishing for the good news. We hit on some of it over the weekend, and we’re back with more.
GitLab just showed that it’s possible to make investors so very happy that they reprice you by more than 25% in a single day. Let’s find out how — and we’ll loop in the latest from Salesforce to undergird our point.
GitLab’s quarter
Shares of GitLab rose just over 28% yesterday to $51.00 per share, up $11.16 in a single day. And investors aren’t changing their mind, with shares of the developer-focused git service not giving back much, if any, of those gains in pre-market trading.
What did GitLab have to accomplish to see such a dramatic repricing from investors? The rare public market triple-crown: It beat on revenue, profitability and outlook in the quarter. Here’s the data:
- Revenue growth of 75% to $87.4 million, ahead of analyst expectations of $78.1 million and faster than the 69% growth it recorded in the previous quarter.
- Adjusted loss per share of $0.18, better than the $0.27 per share loss expected in the quarter.
- Raised revenue forecast of $93.5 million to $94.5 million for the current quarter, and $398.0 million to $402.0 million for the current fiscal year. Both ranges are ahead of the $93.14 million (quarter) and $398.51 million (year) that Yahoo Finance calculates as the current analyst average.
Even more, for you SaaS fans out there, GitLab saw “dollar-based net retention above 130%,” which is rather impressive. In short, GitLab accelerated growth, beat revenue and profit expectations, and raised its outlook to levels that put it ahead of current street estimates.
Now, as it is 2022, there is of course a little bit of bad news: Even after its huge bump in stock market value, GitLab’s stock still trades far below its record high last year.
GitLab traded as high as $137 per share in the last year and fell to lows of $30.74. After that bone-crushingly good quarter — our only quibble being that GitLab is deferring the true cost of paying its employees by using lots of share-based compensation, and then erasing that from its profit non-GAAP calculations — the company is worth just $51 per share.
So, yes, it is possible to shock Wall Street and send your stock to the stratosphere. But even a grand slam won’t get you back to 2021 levels of excitement.
The Salesforce corollary
We try to not quote from press releases; pre-canned quotes that have been massaged by committee lack zip. But in the case of public companies, sometimes they are all you have.
In its latest earnings report, GitLab CEO and co-founder Sid Sijbrandij said that his company has “seen a substantial shift in how enterprises are developing, operating, and securing software by moving to a platform strategy,” which sounds pretty good. He also said that “underpinning [his company’s] acceleration in growth was a higher velocity of new customer wins, as well as seat expansion and tier upgrades of existing customers.”
That sounds like a pretty good market to be in, yeah? GitLab is not the only software company that is chalking up pretty stellar results. Salesforce recently did as well, as we recently reported.
The CRM giant is another example of a SaaS company defying the gloomy economic forecast and conditions in the broader world. In its most recent quarter, for example, it reported revenue growth of 24% over the previous year to $7.4 billion, beating analysts’ expectations of $7.38 billion worth of top line.
Salesforce also predicted it would see robust growth for the remainder of its fiscal year, with growth of 21% expected for the next quarter and 20% for the rest of the year. Even though the company lowered these numbers somewhat from previous forecasts, in the current environment, they represent solid growth, something Marc Benioff was happy to tout at its earnings call with analysts. Salesforce’s profit forecast was also welcome, per CNBC.
Unlike most recent reports we’ve seen lately, with companies being punished by investors even when they post good increases in revenue, Salesforce has been on an upward trend in the stock price department. Its stock is up over 14% in the last month as investors seem to be feeling as positive as Benioff about the company’s performance.
Not to set a high bar for startups, but it appears that software companies that have real product-market fit are doing, well, fine? Just fine despite all the doom and gloom? Sure, valuations aren’t where they were, but there’s good signal from the market that software — again! — looks pretty healthy despite larger economic concerns. That’s good news! We swear!