GitLab's financial struggles raise concerns over stock valuation

GitLab, a major player in the DevSecOps industry, has faced significant challenges regarding its financial health since its initial public offering. As of April 2025, the company has reported an increase in total registered users from an estimated 30 million in fiscal 2024 to more than 50 million in fiscal 2025. However, the small increase in paying customers has raised alarms, as it recorded only 1,291 new base customers despite a substantial growth in total user numbers. The main issue facing the company lies in its ability to convert free users into paying customers, which serves as a vital indicator of its potential profitability. The company operates within a highly competitive sector dominated by larger firms with diverse revenue streams, presenting an uphill battle for GitLab in gaining market share. While its reported revenue for fiscal 2025 stands at $759 million, this amount still pales in comparison to the global DevSecOps market size of $8.8 billion at the end of 2024. Analysts have expressed skepticism regarding the validity of GitLab’s stock valuation, which is based on expectations of high growth and market share increase. Such projections have shifted perceptions towards viewing GitLab’s stock more as a short opportunity since the IPO, adding to the company's financial struggles. GitLab’s reliance on its software development operations has left it vulnerable, particularly as competition becomes stronger and more profitable. As a result, the company has routinely reported negative free cash flow. The various assessments of future financial scenarios project a range of revenue growth possibilities. To validate its stock price of $48 per share, GitLab would need to drastically improve its net operating profit after tax (NOPAT) margin from negative to a positive 17% and achieve compounded revenue growth rates significantly higher than what the industry anticipates for the upcoming years. This has led to estimates that suggest a potential downside of over 38% if GitLab fails to meet aggressive revenue growth expectations in the near future. The current outlook continues to remain grim as discussions around GitLab's fiscal 2025 NOPAT show a current negative value, reflecting the company’s struggle to make a profit. Without the ability to leverage its growing user base for monetization effectively, GitLab is susceptible to further declines in stock valuation. The year-over-year comparisons show such a divergence between user growth and paying customers that they signal potential issues with the core business model, causing analysts to highlight the risk involved in investing in GitLab stock amid the broader industry competition and internal struggles to maintain profitability.