GitLab IPO Range Increased to $11 Billion Valuation

A Potentially Robust IPO Season is Underway

As the warmer months conclude, the anticipation builds for a potentially active period of Initial Public Offerings (IPOs) this autumn. Companies like Rent the Runway and NerdWallet have already signaled a busy second half of October.

However, this week marks the public debut of GitLab, a company with a valuation significantly exceeding those of previously venture-backed startups. The developer tooling firm has recently increased expectations regarding its valuation.

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GitLab's Updated IPO Pricing

GitLab recently revised its IPO filing, indicating a revised and higher anticipated share price. The company now expects to offer shares between $66 and $69 each, an increase from the prior range of $55 to $60.

This represents a substantial increase in projected valuation!

Our focus today is to determine GitLab’s new, straightforward IPO valuation range and calculate its potential worth on a fully diluted basis. We will also analyze revenue multiples to assess whether our initial valuation estimates remain accurate and to understand what the IPO pricing suggests about the broader software market.

This analysis presents positive implications for startups and their investors. For a contrasting perspective, please refer to this article. Are you prepared? Let's proceed.

We will be examining GitLab's potential market performance and its impact on the tech industry.

Understanding the nuances of this IPO is crucial for investors and industry observers alike.

Determining GitLab’s Valuation

Initial projections surrounding GitLab’s IPO indicated a potential valuation between $7.9 billion and $8.6 billion, based on an offering of 143,534,821 shares.

Renaissance Capital, a firm specializing in IPO analysis, noted that at the midpoint of the initially proposed price range, GitLab’s fully diluted market value was estimated at $9.4 billion.

Specifically, a share price of $57.5 would have resulted in a $9.4 billion valuation for the company.

An increase to $60 per share would have expanded this valuation to $9.8 billion.

Currently, with a share price fluctuating between $66 and $69, and the same post-IPO share count, GitLab’s valuation is estimated to fall within a range of $9.5 billion to $9.9 billion.

Considering all potential shares, including those subject to exercise options, the company’s fully diluted valuation could reach as high as $11.3 billion when calculated from the $57.5 to $69 per share range.

A detailed breakdown of these calculations is provided to illustrate the factors influencing the company’s assessed worth.

Understanding Fully Diluted Valuation

The fully diluted valuation accounts for all possible shares that could be outstanding, including those held by employees and investors with stock options.

This metric provides a more comprehensive view of a company’s potential market capitalization than simply considering currently issued shares.

• It incorporates the impact of stock options and warrants.
• It offers a more realistic assessment of ownership distribution.
• It is a key figure for investors evaluating long-term potential.

Therefore, tracking the fully diluted valuation is crucial when assessing GitLab’s worth.

Evaluating GitLab's Valuation

The question of whether GitLab's price is justified warrants investigation.

During the quarter ending July 31, 2021, GitLab reported total revenue of $58.13 million. This translates to an annualized revenue run rate of $232.5 million.

A valuation of $11.7 billion would represent approximately 50 times GitLab’s current annualized revenue.

Is This Valuation Excessive?

The valuation is somewhat high, but not dramatically so. The following analysis was derived from our examination of GitLab’s S-1 filing, conducted prior to the establishment of the initial pricing range.

GitLab’s initial public offering price may be slightly higher than previously projected, though a substantial increase is unlikely.

Should the company price its shares below the upper end of its projected range, our prior estimations will remain accurate.

The Significance of GitLab's Potential IPO Valuation

The potential for GitLab to achieve a high SaaS multiple in its initial public offering (IPO) carries positive implications for other privately held unicorn companies. It suggests that rapidly expanding software businesses may be able to commence trading at premium revenue multiples without needing to first demonstrate performance to justify such valuations.

This development represents a favorable shift in the public market, akin to a welcoming reception for these companies.

Key Assumptions Underlying This Trend

• It is assumed that unicorns possessing substantial valuations are indeed generating the revenue and overall value suggested by their previous funding rounds and high prices.
• It is assumed that these companies maintain gross margins comparable to those of successful entities like GitLab.
• Furthermore, it is assumed that they are not undergoing fundamental changes to their business models.

However, if private companies are consistently delivering the financial results implied by their publicly available data – specifically, their fundraising and valuation history – then the current environment presents an ideal opportunity for them to go public.

Currently, public equity prices are near their second-highest point in recent history, according to a widely used metric. This timing is particularly advantageous.

Therefore, for companies that can substantiate their financial performance, now is a propitious moment to consider an IPO.