A class action lawsuit was filed against Gitlab Inc. (GTLB) by Levi & Korsinsky on September 4, 2024. The plaintiffs (shareholders) alleged that they bought GTLB stock at artificially inflated prices between June 6, 2023 and March 4, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Gitlab stock during that period can click here to learn about joining the lawsuit.
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GitLab is an AI-enabled DevSecOps platform that empowers companies to enhance developer productivity and operational efficiency while reducing security and compliance threats. The company’s claims about its Fiscal 2025 guidance and expectations are at the heart of the complaint.
Gitlab’s Misleading Claims
According to the lawsuit, Gitlab and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the demand for the company’s AI features and ancillary issues from SEC filings and related material.
For instance, during the earnings call at the beginning of the Class Period, Gitlab’s CFO noted that the company continues to invest in AI capabilities while also transferring some of its engineering talent toward AI projects. This helped the company to keep employment expenses in check. Plus, the CFO stated that Gitlab continues to invest in AI Cloud and R&D efforts.
Further, in another earnings call, the CEO stressed the importance of AI in product innovation. On the same call, the CFO stated that Gitlab plans to monetize the AI capabilities with the launch of add-ons, including a code suggestions feature.
Finally, during the earnings call on December 4, 2023, the CEO noted that Gitlab offers 14 AI features, that’s more than any other DevSecOps platform. The advanced features help customers to enhance speed and efficiency while retaining privacy, security, and compliance.
In contrast to the company’s claims about its business, subsequent events (discussed below) revealed that Gitlab allegedly misled investors about its growing AI capabilities and increasing demand for its platform offerings.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the demand for the company’s offerings and AI capabilities.
The information became clear on March 4, 2024, when Gitlab released its Q4 FY24 results. The company reduced its full-year Fiscal 2025 guidance and also projected a non-GAAP operating loss for Q1 FY25 between $12 million and $13 million. At the same time, it forecasted the FY25 non-GAAP operating profit in the range of $5 to $10 million. The company also mentioned that “it needed time to build its pipeline and close deals on new products.” Following the news, GTLB stock collapsed nearly 21%.
To conclude, Gitlab allegedly misled investors about the demand and revenue expectations for its AI-based DevSecOps offerings. Year-to-date, GTLB shares have declined 21.4%, causing significant damage to shareholder returns.
