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Who loses if artificial intelligence wins? Software developers rank highly on the list of jobs considered most at risk of obsolescence. Software development companies must therefore convince investors and customers that AI will enhance existing services, not replace them.
San Francisco-based GitLab is doing a good job of that. On Tuesday, the company’s share price rose 11 per cent following earnings that showed revenues up nearly a third over last year plus a bump in the full-year outlook. GitLab pointed to the popularity of AI features called Duo, which include a chatbot designed to troubleshoot software problems and AI-generated code suggestions.
GitLab joined markets in 2021, part of the rush of technology companies that listed as stock prices peaked. It raised just over $800mn at an $11bn valuation. That has dipped as recession worries slow the pace of IT spending growth. It trades on a trailing sales multiple about a fifth the size of its 2021 peak.
Like many tech companies, GitLab is attempting to juggle cost cuts with investment in AI. At the start of the year, chief executive Sid Sijbrandij blamed a tough macroeconomic environment for forcing the company’s hand in laying off more than 130 people — equal to 7 per cent of its workforce. Sales and marketing costs are now equal to 47 per cent of revenue, down from 72 per cent early last year. It has yet to report a profit. In the first three quarters of the year, net losses reached $390.5mn, nearly three times the size of the equivalent loss the previous year.
The goal is to find ways to expand the range of services clients buy, increasing the crucial dollar-based net retention rate and letting high gross margins turn into profits. At GitLab this is 128 per cent, meaning customers are spending more on services after a year. But last year it was 130 per cent. AI is the key to lifting it higher.
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