- Revenue Growth Surpasses Guidance: Q3 FY2026 revenue reached $244M (+25% YoY), exceeding guidance by 2 points.
- Non-GAAP Operating Margin Expansion: Margin hit 18%, surpassing Q3 guidance by 5 points, with $43.7M operating income.
- GitLab Ultimate Dominates ARR: Contributed 54% of total ARR, driving expansions at major clients like Indeed and SBI Securities.
- Strong Cash Position: Ended quarter with $1.2B in cash/investments, $27.2M adjusted free cash flow (11.1% margin), up from $9.7M YoY.
- International Growth vs. US Public Sector Softness: International markets showed strong growth, while US public sector performance lagged due to government shutdown delays.
Key Drivers of Growth
GitLab Ultimate, which offers a comprehensive DevSecOps platform, now accounts for 54% of total ARR and was a key driver of expansions at major customers like Indeed and SBI Securities. The company saw significant growth in international markets, but US public sector performance was soft due to slower decision-making related to government shutdowns. GitLab's Duo Agent platform, set to be generally available soon, will enable customers to create, share, and use custom-built agents for software engineering tasks. According to Bill Staples, "the team is making progress on the first-order business, but it's still not where it needs to be yet."
Business Model Evolution
GitLab is shifting from a pure seat-based business model to a hybrid seat-plus-usage-based model with the introduction of Duo Agent platform, which will help monetize activities downstream from AI code generation. The company expects this shift to help converge activity in the platform with revenue growth. In Q3, seats contributed over 80% of the mix of net revenue retention rate, yield was around 10%, and the remaining from up-tiering.
Valuation and Outlook
GitLab's strong balance sheet and predictable business model allow for continued investment in AI capabilities, platform enhancements, and go-to-market organization. With a P/S Ratio of 6.9 and EV/EBITDA of -104.13, the market is pricing in significant growth expectations. Analysts estimate next year's revenue growth at 24.9%, indicating a consistent growth trajectory. GitLab's guidance for FY 2026 expects total revenue of $946 million to $947 million, representing a growth rate of approximately 25% year over year.
Challenges and Opportunities
SMB weakness persists, but GitLab's long-term public sector thesis remains intact. The company saw disruption from the US government shutdown and the ongoing effects of Doge in the government, which impacted the license line. GitLab's unified platform approach, context, and ability to action on behalf of users are key differentiators from larger players like OpenAI and Google.