GitLab Inc (GTLB) shares have surged more than 15% premarket Wednesday after a report from Reuters said it is exploring a sale after attracting acquisition interest.
The publication, citing people familiar with the matter, said the U.S. provider of cloud-based software development tools whose investors include Google parent Alphabet, is working with investment bankers on a sale process.
GitLab, which has a vaue of around &8 billion, is said to have that has drawn interest from peers, including cloud monitoring firm Datadog.
However, Reuters cautions that any potential deal is still weeks away, and no agreement is certain.
Alphabet has a 22.2% voting stake in GitLab through its venture capital arm.
Reacting to the news, analysts at Needham & Company said in a note that in their view, GTLB has "long been viewed as an attractive acquisition candidate."
"While we sense that investors view AWS or Google Cloud as more obvious buyout candidates, we are positive on a potential tie-up between GitLab and Datadog (where the article cited interest) - as (a) GitLab would preserve its Cloud neutrality while (b) GitLab would be in the hands of a deeper-pocketed organization as part of a broader platform," they wrote, adding: "We also see less regulatory risk to a Datadog transaction."
The firm also highlighted that the company filed an 8-K 3 weeks ago that adopted amendments where management's equity awards are not subject to cancellation in connection with a corporate transaction without consideration.
"We see the subsequent 16% increase in share price (the S&P 500 is up 4% over the same period) as beginning to embed a takeout premium," analysts at Needham noted. "Meanwhile, GitLab has meaningfully improved profitability since the 2021 IPO, with Operating Profit guidance of $34.0 Million to $38.0 Million (implied Operating Margin of 4.6% to 5.2%).
"At current levels, shares trade at an EV/Revenue multiple of 8.1x and 6.6x consensus estimates for FY26 and FY27, respectively."