GitLab is now worth double what Microsoft paid for GitHub
People celebrate the Gitlab IPO on the Nasdaq on October 14, 2021.
On October 9, 2017, GitLab announced a $ 20 million funding round led by Alphabet’s GV, formerly known as Google Ventures. The news came just as the biggest rival GitHub was about to start its annual developer conference.
This was just one example of the little upstart trying to get the attention of his more established rival.
Just over a year earlier, on September 13, 2016, GitLab said it had raised $ 20 million in a round led by August Capital. GitHub’s developer event, dubbed Universe, kicked off the next morning.
In the code collaboration market, GitLab grew up in the shadow of GitHub. The two companies were built on the open source software Git, which was started by Linux creator Linus Torvalds as a way for software developers to share code and work together from disparate locations.
GitHub was founded in 2008. Four years later it raised $ 100 million from Andreessen Horowitz, a gigantic round at the time. GitLab launched around the time of this funding.
In early 2015, after GitLab completed its three-month stint in the Y Combinator accelerator program, CEO Sid Sijbrandij verified GitHub’s name three times in his two-minute presentation at YC Demo Day.
“Our competitor GitHub has 270 employees. GitLab has 800 contributors,” he said, praising his company’s good faith in open source. “That’s why the GitHub company has caught up with our feature set. “
GitHub had little reason to sweat at the time. GitLab only had $ 1 million in annualized revenue, and GitHub was not only backed by Andreessen, but would soon bring in an additional $ 250 million in a round led by Sequoia.
However, GitHub’s cultural shortcomings had been exposed by an engineer named Julie Ann Horvath, who tweeted at length in 2014 about sexism in the senior ranks. Although the business continued to grow after a few tweaks to the C suite, GitLab suddenly had the opportunity to use its distinctive culture to its advantage.
GitLab was founded as a completely remote company with no head office and no real estate. All employees around the world would have equal access to information. GitLab has an extensive online manual, now over 2,000 web pages, that details how the business works, from finance, engineering and marketing to hiring, to stock- options, compensation and remote work.
Board meetings were held at Sijbrandij’s apartment in the South of Market district of San Francisco.
“We would all be sitting around his kitchen table, and he had a cat that was in his room meowing to come hang out,” said Dave Munichiello, a partner at GV who became a board observer after leading the investment of his company in 2017.
Eventually the board aligned with the rest of GitLab’s operations and became completely distant.
“It was the last aspect of the business to walk away, and our board meetings are better for it,” Sijbrandij said in an interview with Nasdaq on Thursday.
“Ignite the money on fire”
Munichiello said cultural differences mattered as he assessed the two Git-based rivals. As was the fact that GitLab had raised much less money and had low operating costs.
“We had just been through that time when GitHub was setting money on fire,” Munichiello said. In GitLab, “we saw a company that had a fantastic culture and understood that developers are the new kingmakers,” he added.
GitHub did not respond to a request for comment.
Then, in June 2018, Microsoft announced that it was buying GitHub for $ 7.5 billion. At around 25x revenue, GitHub had a high price tag for this period, and the deal seemed to crown the market winner. GitLab’s most recent valuation from the previous year was only $ 200 million.
In fact, the game was only just beginning.
GitLab excelled against its biggest rival, despite Microsoft’s massive sales engine. It also thrives against BitBucket, its other main competitor, owned by Atlassian. In its fundraising announcement in September 2019, GitLab said annual revenue was up 143%. For the year ended Jan. 31, revenues jumped 87%.
Public investors are now rewarding this momentum.
GitLab debuted on the Nasdaq Thursday in one of the most anticipated software IPOs of the year. After the stock jumped 49% in its first days of towing, GitLab is valued at nearly $ 16.5 billion, more than double the acquisition price of GitHub from 2018. Its multiple revenue of 71 is one of the highest of any software and is well above the multiple of Atlassian. 45.
“The market likes rapid growth,” said Tomasz Tunguz, managing director of Redpoint Ventures, which invests in software and infrastructure companies. His company is not involved in GitLab.
Tunguz said that even with GitHub swallowed up, GitLab has shown that the world of DevOps – the word refers to a combination of development and IT operations – does not operate by the same rules as traditional software.
In DevOps, developers decide what tools they use. With so many free and cheap products available through a simple cloud delivery model, the software giants and their huge sales and marketing budgets don’t have much influence on their choices.
So GitLab has built a suite of tools that developers want, in a package that businesses can buy.
“GitLab got a sense of the importance of corporate sales much earlier in the life of the business,” Tunguz said.
Microsoft’s acquisition of GitHub opened up two great opportunities for GitLab. First, GitLab could weed out developers who had an inherent mistrust of Microsoft and its anti-open source past. Although current CEO Satya Nadella has made a point of embracing open source where it makes sense for customers, Microsoft has historically moved away from open source, former CEO Steve Ballmer one day calling Linux “cancer”.
More importantly, GitLab could market itself as a neutral service available across all public cloud providers, while GitHub would be owned by the same company that controls Azure, the second cloud service after Amazon Web Services.
In a blog post titled “Congratulations to GitHub on Microsoft Acquisition,” GitLab made exactly this point.
“The long-term strategic implication appears to be that Microsoft is keen to use GitHub as a vehicle to drive Azure adoption,” the post said.
Scott Guthrie, executive vice president of cloud and enterprise at Microsoft Corp., speaks at the Microsoft Developers Build conference in Seattle, Washington, United States, Monday, May 7, 2018.
Grant Hindsley | Bloomberg | Getty Images
Sijbrandij said the market has gone as planned since the deal. For example, earlier this year GitHub released a product called Codespaces as a cloud-based development environment on Azure.
Regarding clients who migrate, Sijbrandij said UBS signed last year, going from “zero to 11,000 people on GitLab”, even though the bank, like most large financial institutions, uses a lot of Microsoft products.
“Our customers attach great importance to the fact that we are independent from the cloud,” said Sijbrandij. “Every business is going multi-cloud.”
Sijbrandij added that Amazon and Google sell GitLab’s tools and that these efforts “have intensified in recent years.”
Yet GitLab has financial challenges. Even with no real estate fees and a huge universe of unpaid developers helping to build features, it generates big sales and marketing expenses as it tries to convert free users into paying customers, who shell out $ 19 per month or $ 99. per month for features like enhanced security and faster code reviews.
Second-quarter revenue jumped 69% from a year earlier to $ 58.1 million, but the company’s net loss widened during the period to $ 40.2 million from 9 , $ 4 million. Selling and marketing expenses accounted for three quarters of second quarter sales.
The cumulative losses for the past four quarters have exceeded $ 200 million. Prior to the IPO, GitLab only had $ 276.3 million in cash and cash equivalents on its balance sheet.
Unlike GitHub, which now operates within the comfortable confines of cash-rich Microsoft, GitLab needs outside funding to maintain its growth. New Constructs, a research company with a particularly skeptical view of tech IPO valuations, wrote in a report this week that GitLab is expected to be valued at $ 770 million, 95% below its current price.
“As a cash-generating machine, Microsoft can easily afford to offer GitHub services at a lower or lower cost in an effort to gain market share and bring users to the Microsoft platform.” , wrote the company. “GitLab’s dependence on a single source of revenue, subscriptions and licenses to its DevOps platform, is a major competitive disadvantage as it tries to compete with profitable companies that have many other sources of revenue to support lead products. “
GitLab acknowledges in its prospectus that “our main competitor is Microsoft Corporation following its acquisition of GitHub”.
Sijbrandij is certainly not expressing concern now that his company has hundreds of millions of additional capital to fuel its expansion and, for the first time, liquid stock that can be used to acquire smaller businesses.
GitLab CEO Sid Sijbrandij at a corporate event in London
It touts the benefits of GitLab’s comprehensive DevOps platform and the ability for developers to use it as a central repository throughout a project.
“We have been able to create something that allows you to do everything from planning what you’re going to do, from manufacturing it, to deploying it to monitoring it,” Sijbrandij said.
He says the contrast with GitLab isn’t that different from what it was six years ago, when he was just getting out of Y Combinator. GitHub hosts many open source projects, but the products on its ships are closed and proprietary, Sijbrandij said, while GitLab uses a so-called open-core model, marketing open source software.
Going back to GitLab’s first rounds of funding, Sijbrandij did not specifically confirm that his intention was to capture some of the spotlight at GitHub developer conferences. But he didn’t deny it either.
“When you’re starting out as a business,” he said, “it’s really important that you find a way to be part of the news cycle.”
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