GTLB Q3 Deep Dive: AI Adoption, New Platform Launch, and Market Headwinds

DevSecOps platform provider GitLab (NASDAQ:GTLB) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 24.6% year on year to $244.4 million. The company expects next quarter’s revenue to be around $251.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.25 per share was 24% above analysts’ consensus estimates.

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StockStory’s Take

GitLab’s third quarter results saw revenue and adjusted profits come in ahead of Wall Street expectations, but the market responded negatively as investors focused on a slowdown in net revenue retention and persistent U.S. public sector headwinds. CEO Bill Staples pointed to strong adoption of the company’s Ultimate subscription and increased usage of its platform—metrics like CI pipelines and deployments were up 35% to 45% year over year. Management also cited “softness in the US public sector” due to slower government decision-making as a drag on results.

Looking forward, GitLab’s guidance reflects caution around ongoing U.S. federal sector uncertainty and continued softness among smaller customers. Management expects the upcoming general availability of the Duo Agent platform to create new revenue opportunities by shifting toward a usage-based pricing model. Bill Staples emphasized that the company’s AI-driven platform will “expand our total addressable market” and allow GitLab to capture value beyond traditional seat-based subscriptions, while Interim CFO James Shen cautioned that lingering effects from recent government shutdowns could remain a factor into the next quarter.

Key Insights from Management’s Remarks

Management attributed third quarter performance to strong enterprise adoption of premium offerings, expanded AI capabilities, and steady international growth, while acknowledging ongoing challenges in U.S. public sector and SMB segments.

• AI-driven platform usage surge: GitLab saw significant increases in platform activity, with CEO Bill Staples noting a 35% to 45% year-over-year rise in CI pipelines and deployments. The explosion in code generation, driven by AI tools, is translating into greater platform engagement from both new and existing customers.
• Ultimate subscription momentum: The Ultimate tier now accounts for 54% of total annual recurring revenue (ARR) and was a key driver in seven of the top ten net ARR deals in the quarter. Management highlighted notable wins in sectors such as media measurement and global consumer technology, where GitLab replaced multiple incumbent tools.
• International expansion helps offset U.S. softness: Management reported stronger results outside the U.S., which helped balance out slower decision-making and deal delays in the U.S. public sector. Government-related revenue was impacted by the recent shutdown and remains about 12% of ARR.
• Shift to hybrid pricing model: The introduction of the Duo Agent platform marks the beginning of a transition from a purely seat-based revenue model to a hybrid including usage-based pricing. Staples believes this model will better monetize increasing platform activity generated by AI adoption.
• New leadership and sales focus: GitLab hired a new leader to grow its global first order sales team, aiming to accelerate new customer acquisition, particularly in the enterprise segment. Management acknowledged that ramping up this team and seeing results will take several quarters.

Drivers of Future Performance

GitLab’s outlook is shaped by the anticipated launch of its AI-powered Duo Agent platform, ongoing investments in go-to-market capabilities, and persistent challenges in public sector and SMB markets.

• Duo Agent platform rollout: Management expects general availability of the Duo Agent platform to be a major catalyst for future growth. This offering will enable usage-based pricing, opening up new monetization streams as customers adopt AI-driven workflows across the software development lifecycle.
• Go-to-market expansion: The addition of a new global sales leader and increased hiring for first order teams are intended to drive new enterprise customer wins. However, management noted that the impact from these initiatives will likely become evident over multiple quarters, not immediately.
• Ongoing sector headwinds: Lingering effects from the U.S. government shutdown and continued SMB market weakness remain headwinds. Management has factored these risks into guidance, with James Shen stating that “SMB is a small part of our business, but we are assuming that this weakness continues into Q4.”

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will monitor (1) the commercial adoption and monetization pace of the Duo Agent platform, especially as usage-based pricing takes hold; (2) the impact of new enterprise sales hires and expanded go-to-market efforts on customer growth; and (3) evidence of stabilization or improvement in U.S. public sector and SMB segments, which continue to weigh on overall momentum. The pace of AI-driven workflow adoption and resulting revenue mix will also be key signposts.

GitLab currently trades at $39.48, down from $43.37 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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