Parradee Kietsirikul
Update: The story was updated with Needham analysts’ note.
GitLab (NASDAQ:GTLB) is exploring a sale after the San Francisco-based company attracted acquisition interest, Reuters reported, citing people with knowledge of the matter.
GitLab, which provides cloud-based software development tools, saw its stock jump about 13% premarket on Wednesday.
GitLab, which has investors including Google parent Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), is working with investment bankers on a sale process which has seen interest from peers, including cloud monitoring firm Datadog (DDOG), the report added.
Any deal could be weeks away and no agreement is certain, according to the report. Google holds about 22.2% voting stake in GitLab, which has a market value of about $8B.
GitLab has long been viewed as an attractive acquisition candidate, said Analysts Mike Cikos and his team at Needham, which has a Hold rating on GitLab.
The analysts added that, while they sense that investors view Amazon’s (AMZN) AWS or Alphabet’s Google Cloud as more obvious buyout candidates, they are positive on a potential tie-up between GitLab and Datadog as — GitLab would preserve its Cloud neutrality; and GitLab would be in the hands of a deeper-pocketed organization as part of a broader platform.
Cikos and his team also see less regulatory risk to a Datadog transaction.
However, Cikos and his team noted that a transaction with Datadog makes more strategic sense to them. GitLab would retain its neutrality among cloud vendors, and find a home inside a DevOps-oriented parent. At the end of the March quarter, Datadog held $2.8B in Cash and Marketable Securities on the balance sheet. The sell-side forecasts Free Cash Flow of $700.5M (26.8% Free Cash Flow Margin) in CY’24 and $878.9M (27.4% Free Cash Flow Margin) in CY’25.
The analysts also see GitLab’s ownership by Datadog as presenting an opportunity to adjust the monetization mechanism away from GitLab’s seat-based pricing to align with Datadog’s consumption model.
Mergers and acquisitions in the tech sector are heating up, with reports of Alphabet being in advanced talks to buy cybersecurity startup Wiz for about $23B. The U.S. tech giant previously abandoned plans to buy HubSpot.
DDOG -1.35% to $129 premarket July 17