GitLab Inc. (NASDAQ: GTLB) is tech’s most recent dumpster fire. As it reported earnings, its forecasts for the next fiscal year and quarter were light. The stock was pummeled after the earnings news, dropping 32% to $30. It traded at $70 last August. (Here are the 25 biggest product flops of the past 10 years.)
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Revenue was not a major problem, as it was up 58% to $123 million. However, GitLab bombed on the bottom line: it lost $39 million. The current stock market punishes money-losing tech companies. However, GitLab can lose money almost forever. It has over $900 million in cash and short-term investments.
What imploded the stock price was its revenue forecast for the current quarter, as low as $117 million. Rapid growth at the top line remains prized among investors, particularly when it can eat into losses.
GitLab’s management signaled that hiring had outpaced revenue growth by too much. It said it would lay off 7% of its workers. This means that it cannot grow enough to make those employees valuable in the future. This is particularly telling for a company with its cash balance. Investors have every reason to dump the stock.
GitLab has a mundane business that does not have a wide moat. Its products allow developers to build and deliver secure software. Gartner has a long list of companies that compete with GitLab, including Microsoft and IBM.
Until recently, some investors looked at GitLab as tech’s next $1 billion in revenue company. That goal seems less likely.
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