GitLab's AI Copilot Will Remain Strong Despite Microsoft's Threat: Analyst

Truist analyst Joel P. Fishbein Jr. reiterates a Buy rating on GitLab Inc GTLB with a price target of $50.
The Supply Chain Management (SCM) market has been a critical area of focus in the analyst's coverage following Microsoft Corp's MSFT investment in OpenAI and the rollout of their Copilot tool for code suggestions.
Last week, GitLab quietly rolled out the public beta version of their code suggestions tool.
From the analyst's industry conversations, he believes that GitLab can create a substantial competitor to Copilot and sees a full-scale release sometime this summer.
He also thinks that partnerships will factor into their AI strategy and likely work with other more prominent players.
Importantly, none of the enterprise IT customers or sellers he spoke with have fully adopted Copilot into large-scale production environments. He believes that there are hurdles in security, governance, and compliance that will prevent this at the enterprise level in 2023.
The pricing changes that GitLab rolled out in early April are the critical driver in the fundamental story for the company from here.
Over the following year, as the renewals come through, he anticipates that the potential ARR uplift from the intermediate pricing for Premium customers alone could drive as much as $50 million - $70 million in ARR upside to current Street numbers through FY25.
Although it is too early to know the full impacts of the pricing change, he notes that the company did not allow early renewals, which removes a pull-forward effect from current customers in 1Q24 and smooths the model trajectory in FY25.
The pricing increase and the reduction in workforce in February could drive leverage on the bottom line.
The analyst estimates an annualized benefit of $27 million per year, and the upside from new pricing could drive positive FCF by the end of FY24.
He believes the structural uplift to the top and bottom lines from the pricing increase will drive a beat-and-raise cadence from the company through FY25.
Price Action: GTLB shares traded higher by 1.98% at $32.98 on the last check Monday.

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