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Software development tools provider GitLab (GTLB -17%) gives up most of its 2024 gains today despite exceeding top and bottom-line estimates in Q4 (Jan) while issuing relatively decent revenue guidance. Today's nosedive emanates from weak Q1 (Apr) and FY25 adjusted earnings forecasts, which were made worse by management's remarks that it is no longer guiding conservatively going into its third year as a public company.

The underwhelming earnings projections resulted primarily from two major upcoming expenses, including an in-person retreat for employees and GTLB's China joint venture, JiHu, which the company continues planning to deconsolidate but is unsure of when. With shares up over +70% since November, investors were pricing in far better guidance than GTLB provided, driving swift profit-taking today.

• GTLB's Q4 performance was still solid, expanding its adjusted earnings to $0.15 per share from $(0.03) in the year-ago period on sales of $163.8 mln, a 33.3% jump yr/yr.
• Large customer growth persisted in the quarter, with GTLB's cohort of over $100K of annualized recurring revenue (ARR) expanding by 37% yr/yr, identical to the growth registered in Q3 (Oct) and Q2 (Jul). Meanwhile, customers with over $1.0 mln of ARR jumped 52% to 96.
• CFO Brian Robins remarked that compared to the previous quarter, buying behavior improved across all customer sizes, including small and medium-sized businesses (SMBs), a notable weak point in Q3. Additionally, while Mr. Robins admitted that the spending environment remains cautious, demand is normalizing. Furthermore, churn and contraction during Q4 improved for the fourth straight quarter. Also, demand for GTLB's top-tier software, Ultimate, which represented over 50% of bookings in the quarter, remains robust.
• However, GTLB's guidance did not reflect the upbeat tone expressed throughout the call. The company projected Q1 adjusted EPS of $(0.05)-$(0.04), well below analysts' positive figure. The hurdle in Q1 impacted FY25; GTLB expects EPS of $0.19-0.23, also below estimates. Also, while Q1 revenue forecasts of $165-166 mln surpassed estimates, the midpoint of GTLB's FY25 revenue outlook of $725-731 mln fell short of consensus.

Today's significant downward move highlights the volatility surrounding AI, which can ignite tremendous rallies just as fast as it can douse a hot stock. GTLB has been prone to wild swings in previous quarters, falling by over 20% the day following 4Q23 results last March, only to bounce by over 30% just three months later. While AI remains a core part of GTLB's platform vision, it is not keeping guidance from missing the mark today, triggering a rush of selling.

Still, there are plenty of reasons to remain optimistic about GTLB's near future, including normalized buying behavior, improved churn rates, and sustained growth in Ultimate. Furthermore, the interest in deploying AI across numerous facets of an organization, including workflows, has yet to slow down. Therefore, it is worth keeping GTLB on the radar despite a less-than-stellar earnings forecast.