Contributing to an undesirable list, open core DevOps specialist Gitlab (NASDAQ:GTLB) became the latest technology firm to announce layoffs. The news comes amid a market session turned soft on Thursday as concerns about monetary policy weighed on sentiment. Following the job cut announcement — which will impact about 7% of the workforce — GTLB stock slipped more than 12% in the early afternoon session.
Gitlab CEO Sid Sijbrandij made the unfortunate announcement in a message to employees. “The current macroeconomic environment is tough, and as a result, companies are still spending but they are taking a more conservative approach to software investments and are taking more time to make purchasing decisions,” Sijbrandij stated.
Focusing on DevOps or a unified protocol that automates and integrates processes between software development and information technology teams, Gitlab offers this enterprise-level service to top institutions. These include Goldman Sachs (NYSE:GS), UBS (NYSE:UBS), Nvidia (NASDAQ:NVDA) and Siemens (OTCMKTS:SIEGY).
Despite this advantage, Gitlab could not marshal forward momentum. “I had hoped reprioritizing our spending would be enough to withstand the growing global economic downturn. Unfortunately, we need to take further steps and match our pace of spending with our commitment to responsible growth,” added Sijbrandij.
Sadly, GTLB stock joins the growing ranks of publicly traded tech firms to announce layoffs.
Profitability Concerns May Have Caught Up with GTLB Stock
Primarily, negatively affected tech firms cited contracting macroeconomic conditions as a contributing catalyst for their downsizing. However, for GTLB stock, this narrative may be more pronounced because of the underlying enterprise’s lack of profitability.
According to Gurufocus, Gitlab features a net margin (on a trailing-12-month basis) of 47.3% below breakeven. To be fair, the company’s making progress on this front. In its most recent quarter ending Oct. 31, 2022, Gitlab posted a non-GAAP loss of 10 cents per share. This came in better than expected and narrowed the red ink from a loss of 34 cents one year prior.
Nevertheless, net loss on a TTM basis sits at $179.4 million, expanding from a loss of $155.1 million in the fiscal year ended Jan. 31, 2022. Amid the possibility of the Federal Reserve continuing to hike interest rates, these losses don’t bode well for GTLB stock. Indeed, Fed Chair Jerome Powell suggested an unusually robust labor market may require interest rate increases.
To be sure, one of Gitlab’s main strengths centers on its balance sheet, particularly its zero-debt profile. However, its cash and cash equivalents line item have conspicuously dwindled recently. At the end of fiscal 2022, Gitlab posted a cash balance of $884.7 million. On a TTM basis, this stat sits at $372.2 million.
As well, its cash flow from financing mitigates the losses seen in free cash flow. However, macro pressures may force more funding under undesirable circumstances. Therefore, investors appeared to take a dim view on GTLB stock.
Why It Matters
Although circumstances for GTLB stock appear ugly, it’s important to realize that Wall Street overall still rates shares highly. According to TipRanks, Gitlab carries a strong buy consensus view. Also, analysts anticipate shares hitting $61.80 on average, representing about 43% upside potential.
Still, hedge fund sentiment for GTLB stock has been very negative, forcing significant due diligence for prospective investors.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.