GitLab share price bounces following Q3 earnings beat

Despite a negative outlook setting in around SaaS stocks over 2022, GitLab and MongoDB both posted strong earnings results this week, with GitLab’s stock surging after it beat earnings and revenue estimates and raised full year guidance. MongoDB is set to see a similar jump following its earnings report.

- GitLab stock surged following its earnings beat, posting a 69% year-over-year revenue increase

- MongoDB also beat expectations, raising guidance and announcing a 47% rise in revenue

- The WisdomTree Cloud Computing ETF offers exposure to GitLab, MongoDB and Atlassian

Share prices for Software as Service (SaaS) companies such as GitLab [GTLB], MongoDB [MDB] and Atlassian Corporation [TEAM] have tumbled in 2022. GitLab has fallen 51.78% in the year to 2 December, MongoDB is down 72.67%, and Atlassian has dropped 67.3% in the same period. 

Highlighting recent challenges for SaaS companies, Morgan Stanley analyst Sanjit Singh recently downgraded MongoDB stock from ‘overweight’ to ‘equal weight' and moved his price target down from $368 to $215. Singh predicted that the macroeconomic challenges currently stifling enterprise spend “will likely weigh on growth for the next few quarters.”

With cybersecurity’s increasing relevance for resilience in enterprise companies, it appears a natural addition to SaaS providers’ offerings. GitLab, ahead of reporting earnings after market-close on 5 December, launched its dedicated DevSecOps platform GitLab Dedicated on 1 December. Combining cloud SaaS services with robust security and compliance features, GitLab Dedicated will initially be available to Amazon Web Services (AWS) customers, and later rolled out to other cloud provider platforms in 2023.

Short interest in GitLab increased 11.8% in November, with 14.3% of the company’s shares being shorted. As of 15 November, 5.68% of MongoDB’s shares were shorted.

Revenues increase at SaaS firms

GitLab announced its third quarter 2023 earnings after markets closed on 5 December. Revenue came in at $113m, an increase of 69% year-over-year and 6.1% above Financial Times analyst expectations of $106.5m. Net losses of $0.10 per share were also a 33% improvement on analyst expectations. The company also raised its full-year guidance from between $411m and $414m to between $420.5m and $421.5m in revenue. It also revised net losses from between $0.67–0.64 to $0.56–0.55 per share. GitLab shares gained 9.44% on 6 December reflecting the positive results.

MongoDB announced its earnings the following day, reporting revenues of $333.6m, an increase of 47% year-over-year and 10% above the median estimate of analysts polled by the Financial Times. Net earnings of $0.23 per diluted share greatly exceeded analysts expectations of a $0.17 loss. The company raised its full-year revenue guidance from between $1.20bn and $1.21bn to between $1.25bn and $1.26bn, and full-year earnings guidance was raised from losses of between $0.35 and $0.28 per share to profits of between $0.29 and $0.31 per share.

Atlassian announced its Q1 2023 results in November, reporting revenue of $807.4m, up 31% year-over-year and narrowly beating analyst estimates by 0.1%.

Theme trend

Countering the negative SaaS outlook that has set in during the year, Sid Sijbrandij, co-founder and CEO of GitLab, said “companies cannot afford to slow down their software innovation,” emphasising that GitLab can help provide cost-saving solutions and drive further innovation.

Dev Ittycheria, president and CEO of MongoDB, praised the strong performance of Atlas, the company’s multi-cloud database service, which gained 61% year-over-year in revenue growth and accounted for 63% of MongoDB’s total Q3 revenue. He said that the strong set of results “reinforces the strategic importance of MongoDB's developer data platform in enabling [its] customers to use software and data to transform their businesses.”

Nevertheless, there is a microscope on SaaS companies, with greater pressure than ever for them to control spend and work towards profitability. Equity research firm New Constructs recently added Atlassian and Okta [OKTA] to a list of “zombie stocks” due to the scale of their cash burn.

Fund in focus: WisdomTree Cloud Computing UCITS ETF

Investors seeking exposure to cloud stocks including GitLab, MongoDB and Atlassian can consider the WisdomTree Cloud Computing UCITS ETF [WCLD.L]. As of 6 December, Gitlab has a weighting of 1.17% in the fund, while MongoDB has a weighting of 0.74%, and Atlassian a weighting of 0.79%. The fund has fallen 53.4% year-to-date, with top holding Yext [YEXT] falling 36.2% over the same period. WCLD has gained 4.7% over the last month.

Alternatively, the First Trust Cloud Computing ETF [SKYY] offers exposure to MongoDB and Atlassian, with 1.56% and 1.05% weightings, respectively, as of 6 December. SKYY has fallen 43.2% year-to-date, but gained 3% over the preceding month.