GitLab Inc - Class A

We bought shares in GitLab. GitLab is a software company offering DevSecOps and git management for enterprises, serving as an essential 'orchestrating' layer for companies to securely manage their codebase and IP. AI is unquestionably driving demand for GitLab’s offerings, but there is concern around its traditional per-seat pricing model versus a consumption-based model. This headwind has slowed top-line growth faster than GitLab’s budding consumption-based models for AI agents have been able to replace the lost revenue. As it stands today, AI-based revenues are a small piece of the pie, but we expect substantial growth over time. At sub-4x EV/sales, around 20x EV/EBITDA and a free cash flow yield over 5%, we think the valuation is compelling for a business still growing its top line in the high teens and playing an increasingly important role in enterprise AI workflows.

Gitlab (GTLB) was a detractor as an event-driven trade. We had a position to capture a potential repricing driven by earnings given its attractive valuation and its status as a possible acquisition target. However, the anticipated repricing did not materialize, leading to a reduction in our position. The market's reaction to Gitlab's earnings has not aligned with our expectations, prompting us to reassess our investment in the company.

We bought positions in GitLab as it fell from >11x NTM sales to 5x sales. The strategic position of GitLab is steadily increasing, as more code is created in tools that need to be managed via a DevOps platform like GitLab. The switching costs for organizations using GitLab are enormous, especially given its low cost per engineer. GitLab would be an amazing acquisition for a large model provider, cementing their control over the software development process at large enterprises.