GitLab pops as Morgan Stanley starts coverage

GitLab (NASDAQ:GTLB) was in focus on Wednesday as Morgan Stanley started coverage on the DevOps company, noting it has become an “emerging enterprise platform.”

Shares rose 6% in premarket trading.

“After decades of fragmentation, the software delivery market is consolidating as the focus on cost and engineering productivity rises,” analyst Sanjit Singh wrote in a note to clients. “We see GitLab as a key consolidator in a large market positioning the company as the next enterprise platform story in software.”

Singh started coverage on GitLab with an Overweight rating and $70 price target.

And with the company continuing to take market share, revenue should grow at a compound annual rate of 26% through 2027, with margins nearly doubling by 2027, Singh added.

“Relative to emerging software platforms, valuation screens attractive with shares trading at a discount on a growth adjusted sales and FCF basis,” Sing explained.

The DevOps and DevOps market should reach $43B by 2027, with GitLab competing against companies like CrowdStrike (CRWD), Datadog (DDOG), Cloudflare (NET), HubSpot (HUBS) and Palantir (PLTR), Singh explained.

“We view GitLab’s serviceable opportunity today mostly centering on the entirety of the software delivery market, security analytics as well as collaboration,” Singh wrote. “Taken together, these categories represent just under $13 billion in spend in 2023 growing at a 17% CAGR over the next four years to reach $24 billion in 2027. Over time, we think product markets such as IT service management, observability and other areas in security (such as CNAPP) are ultimately addressable for GitLab and should allow GitLab to participate in the broader DevOps/DevSecOps opportunity which stands at ~$23 billion today and is expected to grow at a 17% CAGR to reach ~$43 billion by 2027.”