Things GitLab’s wild IPO pricing says about public markets

I am still processing GitLab’s IPO pricing as I sit here waiting for the stock to begin trading. When we initially learned about GitLab’s IPO file, TechCrunch did some math and calculated that the firm would likely be valued at $10 billion in its first public offering.

Everyone appeared ready to make a profit at that price point, even the company’s most recent investors, who would see a speedy return on their investment in the DevOps unicorn. In a secondary sale of its equities a year ago, the firm was valued at roughly $6 billion, while the latest primary price set on GitLab was less than $3 billion back in 2019.

The firm exceeded our expectations. GitLab’s initial IPO price range was $55 to $60 per share; however, the company quickly boosted its expectations to $66 to $69 per share. Given that the business’s first figures were a touch lackluster, it was not surprising to see the company target higher in its IPO pricing. The magnitude of the difference between the company’s first and second IPO price ranges, on the other hand, was startling. The business then went on to price at $77 per share, air gapping its previous valuation estimate once more.

Things GitLab’s wild IPO pricing says about public markets

At the time of its IPO, GitLab had 143,534,821 shares outstanding, valued at $11.1 billion. With a little additional work, the company’s fully diluted valuation comes in at about $12.6 billion. From a fundraising and valuation standpoint, the business’s IPO was a success; if the company’s stock spikes dramatically when it does begin to trade, blame mispricing on both investment bankers and the former startup’s private investors, who valued the company at less than $3 billion in late 2019.

Here is what I am thinking about the company’s IPO pricing briefly: Revenue growth is excellent, but revenue growth based on top-tier SaaS indicators is even better: It’s not easy to figure out why GitLab’s first IPO pricing range was so far off. There is not a single solution. 

However, I believe GitLab’s great SaaS metrics helped since they portray a firm with a lot of growth baked into its performance. GitLab, for example, had a net retention rate of 148 percent in 2020. 

During the outbreak of the pandemic, In H1 2021, the figure grew to 152 percent. Regardless of what happens economically, slowing GitLab will be difficult. In certain ways, net retention acts as a buffer against a macroeconomic slowdown. This had no effect on GitLab’s IPO pricing.