Bernstein says this software development firm can grow sales by eight times current levels

Published Tue, Sep 12 20237:14 AM EDT

GitLab could be a winner in the evergreen software space, according to Bernstein. The firm initiated coverage of GitLab stock with an outperform rating as well as a $62 per share price target. Bernstein's forecast implies about 17.6% upside from Monday's closing price. "There are only a few developer tool companies at scale and with a strong enough competitive durability, and we believe GitLab is amongst them ... and we don't see any further major entrants into source code management space," analyst Peter Weed said in a Monday note. The technology platform has gained 16% so far this year, with shares climbing 11.3% just this month. GitLab jumped following a strong second-quarter report and current-quarter guidance last week. According to the analyst, GitLab operates in a duopoly with Microsoft-owned GitHub, with both companies sharing roughly 70% and increasing market share of cloud development Gits, or code repositories. Weed expects GitLab can grow its revenue by eight times from its current value to about $4 billion in revenue by the end of 2030 — and that the company might even grow twice as fast as sell-side analysts expect. More broadly, the firm is bullish on the growth of software development tools — particularly cloud native continuous integration and deployment tools that GitLab employs — given an expected rise in the number of global developers by 2030 and AI advancements in large language models. "GitLab's opening is to become the "Switzerland" platform for CI/CD development pipelines — a durable and large market position," Weed said. "Switzerland means they are trusted to remain independent of hyperscalers to prevent cloud lock-in, and platform means they replace a long list of best-of-breed point solution tools needed today that are harder to use and have higher cost of ownership." Still, the firm noted market constraints on Gitlab's pricing power and product expansion options, noting competition from GitHub, Australian software firm Atlassian and potentially Datadog. "The top line appears very attractive! But on the bottom line they are still burning cash," Weed said. He added that the company's shares could decline if GitLab does not gain its fair share of development growth or if its sales and marketing cost benefits stall, perhaps due to competition. — CNBC's Michael Bloom contributed to this report.