GitLab IPO Pricing: What It Reveals About Public Markets

Analyzing GitLab’s IPO Pricing and Valuation

Currently observing the anticipation surrounding GitLab’s commencement of trading, a thorough evaluation of the company’s initial public offering price is underway.

Initial analysis of GitLab’s IPO filing, as conducted by TechCrunch, suggested a potential valuation of $10 billion upon its market debut.

At this projected valuation, substantial gains were anticipated for all stakeholders, including recent investors who would realize a rapid return on their capital invested in the DevOps company. The company’s previous valuation in private secondary markets reached approximately $6 billion a year ago. Prior to that, in 2019, the last primary valuation placed on GitLab was under $3 billion.

The company ultimately exceeded these initial projections.

GitLab initially proposed an IPO price range of $55 to $60 per share, subsequently increasing its target to $66 to $69 per share. This upward revision was expected, given the initial figures appeared conservative. However, the magnitude of the difference between the first and second price ranges was noteworthy.

The company then priced its shares at $77, further surpassing previous valuation estimates.

With 143,534,821 shares outstanding at the IPO price, GitLab’s value reached $11.1 billion. Calculating the fully diluted valuation reveals a figure around $12.6 billion.

From a fundraising and valuation standpoint, the IPO is demonstrably successful. Should the stock experience a significant increase upon trading, any mispricing can be attributed to both the investment banks involved and the company’s earlier private investors who valued it at less than $3 billion in late 2019.

Key Considerations Regarding GitLab’s IPO Pricing

• Strong Revenue Growth Combined with Top-Tier SaaS Metrics is Highly Valuable: Determining the reasons for the initial undervaluation in GitLab’s first IPO price range is complex. However, the company’s exceptional SaaS metrics likely played a significant role, portraying a picture of substantial future growth. For instance, GitLab exhibited a net retention rate of 148% in 2020, even during the pandemic. This figure increased to 152% in the first half of 2021. This suggests GitLab is resilient to economic fluctuations, effectively hedging against potential macroeconomic slowdowns, which positively impacted its IPO pricing.
• Achieving a Top-Five Public Multiple is Possible: With $232.5 million in annualized revenue (based on data from the July 31st quarter), GitLab’s valuation is approximately 54 times its run rate. This places it among the top five companies on the Bessemer Cloud Index. Essentially, GitLab is entering the public market with a valuation comparable to leading SaaS companies like Bill.com and Snowflake. This demonstrates that unicorns can launch with high multiples, and even begin at the very top if their financial performance supports it. There’s no need to gradually climb the ladder after going public.
• Public Markets May Be More Receptive Than Private Markets: The increase in GitLab’s valuation from around $3 billion to $6 billion between 2019 and 2020 was already significant. However, the company has now doubled its value again, adding $6 billion to its worth. A quadrupling of valuation within two years represents an impressive rate of value creation. While claiming this is historically unprecedented would be speculative, it’s clear that public markets are at least as welcoming to high-growth SaaS companies as private markets, and potentially even more so. Further data is needed to confirm this trend, but the initial indications are promising.