GitLab’s Horrible Management

GitLab Inc. (NASDAQ: GTLB) is tech’s most recent dumpster fire. As it reported earnings, its forecasts for the next fiscal year and quarter were light. The stock was pummeled after the earnings news, dropping 32% to $30. It traded at $70 last August. (Here are the 25 biggest product flops of the past 10 years.)
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Revenue was not a major problem, as it was up 58% to $123 million. However, GitLab bombed on the bottom line: it lost $39 million. The current stock market punishes money-losing tech companies. However, GitLab can lose money almost forever. It has over $900 million in cash and short-term investments.
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What imploded the stock price was its revenue forecast for the current quarter, as low as $117 million. Rapid growth at the top line remains prized among investors, particularly when it can eat into losses.
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GitLab’s management signaled that hiring had outpaced revenue growth by too much. It said it would lay off 7% of its workers. This means that it cannot grow enough to make those employees valuable in the future. This is particularly telling for a company with its cash balance. Investors have every reason to dump the stock.
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GitLab has a mundane business that does not have a wide moat. Its products allow developers to build and deliver secure software. Gartner has a long list of companies that compete with GitLab, including Microsoft and IBM.

Until recently, some investors looked at GitLab as tech’s next $1 billion in revenue company. That goal seems less likely.