GitLab Coverage Initiated by Morgan Stanley

Morgan Stanley has initiated coverage on GitLab (NASDAQ:GTLB) with an overweight rating and a price target of $70, highlighting the company’s position as a key player in the expanding DevOps/DevSecOps market.

According to analysts at Morgan Stanley, GitLab is poised to become a consolidator in this fragmented market as businesses increasingly seek platform-based solutions over multiple specialized tools.

This trend is driven by rising costs associated with integrating varied software solutions and a need to enhance productivity amidst tighter IT budgets.

GitLab's platform offers a comprehensive approach, covering the entire software development and delivery pipeline, which includes:
– Source code management
– Continuous integration
– Security features

Significantly, GitLab has integrated AI capabilities under its “Duo” suite, offering tools for:
– Code suggestions
– Test generation
– Vulnerability analysis

Morgan Stanley noted GitLab’s rapid innovation in AI has enabled it to compete effectively with rivals like Microsoft’s GitHub.

The report states that GitLab's addressable market is valued at approximately $13 billion, projected to grow to $24 billion by 2027. This growth is attributed to its strong footing in areas like source code management and continuous integration/delivery.

In the long term, GitLab plans to capture an even larger market share as it expands into IT service management and observability, with the overall DevOps and security market potentially reaching $43 billion by 2027.

GitLab's revenue is anticipated to grow at a CAGR of 26% through 2027, driven by market share gains and upsell opportunities. By 2027, operating margins are expected to nearly double to 16%, with free cash flow margins reaching 20%.

Despite positive growth projections, Morgan Stanley cautions about risks, including competition from GitHub and the evolving influence of AI, which could disrupt traditional software development processes.

Shares of GitLab rose 3.1% in pre-open trading.