GitLab Inc (NASDAQ:GTLB) stock gained after Needham analyst Mike Cikos upgraded the stock from Hold to Buy with a $70 price target.
Cikos noted that GitLab has expanded its product offerings, with Ultimate gaining traction due to innovations like Duo Pro Enterprise and Dedicated. The analyst expects increased adoption of Ultimate compared to Premium, driven by stronger Enterprise sales and GitLab's compliance and security features, which large organizations value.
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He said premium SKU pricing changes will also contribute to revenue growth, providing a tailwind into fiscal 2026.
Cikos noted that strong incremental margins, currently around 40%, support the company's ability to surpass revenue expectations for the October quarter.
The analyst said that the debate over Premium versus Ultimate is less relevant in the current landscape, where Enterprises have larger budgets and favor Ultimate.
Recent data from GitLab shows that seven out of the company's top 10 deals in the second quarter of fiscal 2025 were for Ultimate, and 65% of new dollars from $100,000-plus customers came from this tier. Innovations like Dedicated and Duo Pro, exclusive to Ultimate, further enhance its appeal. He added that enterprises offer more significant potential for cross-selling and expansion as they have larger budgets than SMBs.
Cikos' analysis indicates GitLab could exceed subscription revenue estimates for the third quarter of fiscal 2025 and beyond.
The analyst noted that the premium price increase, customer retention, and churn improvements should contribute to continued growth. Additionally, he anticipates operating margin expansion driven by cost discipline and leverage in the subscription model.
In fiscal 2024, GitLab's revenue grew by $155.6 million, with $85.8 million translating to adjusted operating profit, demonstrating incremental solid margins.
Cikos noted that GitLab is well-positioned in a large market, sharing it with Microsoft's GitHub. However, the analyst noted that GitLab's focus on security and compliance gives it an edge over organizations prioritizing these features. The company also benefits from its flexible deployment options, which cater to Enterprises at different stages of their cloud journey.
As a neutral vendor, GitLab attracts businesses looking to diversify their tech stack and reduce dependency on Microsoft.
Cikos anticipates that GitLab will continue growing its public sector presence, aided by its recent product launches and federal security certifications.
Price Action: GTLB stock is up 0.48% at $55.61 at the last check on Monday.
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