GitLab Reports 29 Percent Revenue Growth

GitLab(NASDAQ:GTLB) reported results for Q2 FY2026 on September 2, 2025, delivering 29% year-over-year revenue growth to $236 million and expanding non-GAAP operating margin to 16.8%. Management sustained its full-year revenue guidance but raised its profit outlook, citing robust non-GAAP operating leverage and the initiation of a hybrid seat plus usage-based monetization model tied to its AI-powered Duo Agent platform. The following analysis highlights major operational shifts, product innovation progress, and evolving go-to-market execution with clear implications for the long-term investment thesis.

GitLab delivers double-digit ARR growth and expands operating margin

Annual recurring revenue (ARR) expansion was concentrated within the enterprise and mid-market, with 10,338 customers contributing at least $5,000 in ARR and the $100,000-plus cohort grew by 25% year over year to 1,344 accounts. Non-GAAP gross margin remained at a strong 90%, and adjusted free cash flow reached $46 million, or a 20% margin.

"Second quarter revenue reached $236 million, an increase of 29% from Q2 of the prior year. We now have 10,338 customers with ARR of at least $5,000, which contributed over 95% of total ARR in Q2. Our larger customer cohort of $100,000 plus in ARR increased 25% year over year and reached 1,344. We continue to have a diversified customer base both by industry and geography and no single customer accounts for more than 2% of ARR. On the expansion front, we ended the quarter with a dollar-based net retention rate or DBNRR of 121%. Q2 DBNRR was driven by a combination of seat expansion at approximately 80%, increased customer yield at approximately 5%, and the balance due to tier upgrades. I'd like to reiterate some of the one-time disclosures on seats that Bill discussed. Over 70% of our revenue growth in FY 2026 is due to paid seat growth, and over the last four quarters, we've seen an accelerating double-digit rate of paid seat year-over-year growth. Less than 10% of the FY 2026 revenue growth was derived from the premium price increase.
-- Brian Robbins, CFO

Durable expansion within existing accounts, a low customer concentration risk, and a resilient ARR mix support stable long-term revenue compounding, while subdued reliance on price increases underscores the quality of GitLab's value proposition.

AI-driven product set accelerates, unlocking new usage-based monetization

GitLab's launch of the Duo Agent platform and new integrations with major AI providers extended its security and automation capabilities, while product stickiness improved, with 53% of total ARR now coming from the high-value Ultimate tier. The adoption of GitLab Dedicated now contributes approximately $50 million in ARR, growing 92% year over year, and Ultimate was chosen in eight of the ten largest deals.

"With the Duo agent platform, we are enabling engineers to collaborate with AI agents and do many tasks automatically and in parallel instead of manually or one at a time as they do today. We plan to charge for all of this work done via usage charges whether that work is done by our agents or our partner's agents hosted and integrated into our platform. This means our business model will evolve from a purely seat-based model to a hybrid seat plus usage-based model. When launched, customers will receive some included usage with their base subscriptions so they can easily begin to adopt DuoAgent platform pay as they go beyond the included amount and commit in advance to additional usage to receive the very best pricing."
-- Bill Staples, CEO

The transition to a hybrid seat and usage-based pricing model is driven by platform automation and AI-powered features.

Go-to-market and executive team transformation targets new customer growth

The company initiated a dual sales-led and product-led growth (PLG) strategy: a new global sales organization focused on first orders and post-sales value, alongside PLG driven by the appointment of Manav Khurana as chief product and marketing officer, to counter the decline in new customer cohort sizes. Leadership changes accompany these shifts, with the newly appointed CRO and PLG head tasked to ramp new logo acquisition and accelerate module adoption—critical for reaching the next revenue inflection as the company approaches the $1 billion scale.

"It's really important that we do that because if you look at the cohort data that we shared, our 2016 cohort has grown at 100x. And every quarter, we build new cohorts of future growth. And it has been decelerating. I would say that probably the primary cause of it is we have not incentivized or created a specialized Salesforce focused on first order. And we've let our reps bring in net ARR growth. The way that they're able to do that each quarter. And over time, as our revenue base has grown, obviously, that has come in more and more through expansion as opposed to first order. That's why I mentioned in the prepared remarks, it's time to balance our investments there and have more specialized sellers focused on first order as well as a new product-led growth. Approach. To bringing customers through a self-service experience. Both of those in terms of timeline will begin ramping now throughout H2. And we hope to see early returns on that in FY 2027."
-- Bill Staples, CEO

This explicit strategic pivot to specialized new business development and PLG is designed to counterbalance a recent trend of slower customer additions, which, if reversed, would restore multi-year growth durability and diversify future sources of ARR expansion.

Looking Ahead

Management projects Q3 FY2026 revenue of $238 million to $239 million, up approximately 23% year-over-year and FY2026 revenue of $930 million to $942 million, reflecting around 24% year-over-year growth, with full-year non-GAAP operating income expected at $133 million to $136 million. GitLab will hold revenue guidance flat to reflect ongoing sales and organizational transitions, while raising profit outlooks due to margin leverage. The initial launch and ramp of the hybrid usage-based Duo Agent platform are set for general availability by year-end, positioning GitLab for early adoption impacts in fiscal 2027; no additional quantifiable long-term guidance or strategic milestones were specified.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends GitLab. The Motley Fool has a disclosure policy.