GitLab shares sink after layoff news. Why analysts still see massive upside.

GitLab shares fell nearly 15% following the announcement of a restructuring plan that involves cutting approximately 14% of its workforce, equating to roughly 350 roles. The company stated the move aims to tighten costs and sharpen its focus on profitability, with expected annual expense reductions of $60 million. Despite the market reaction, the company reported an 18% year-on-year revenue increase to $282 million for the fiscal quarter ended April 30, 2026, and a narrowed net loss. Analysts remain divided, with Morgan Stanley downgrading the stock while Goldman Sachs and Needham maintained bullish ratings.

The sharp selloff reflects broader pressure on software stocks as enterprise customers slow spending and become more selective with new deals. GitLab’s stock has already been under serious pressure, falling more than 33% over the past year and about 18% year-to-date in 2026. With the stock now sitting well below both its 50-day and 200-day moving averages, the chart looks weak, and sellers remain in control for now. However, the valuation picture is starting to look more interesting, with GitLab trading at about six times forward sales compared to a software sector median of eight times.

Management intends to redirect resources toward areas where customer demand is strongest while improving its path to profitability. GitLab’s platform is built to handle the entire software development cycle in one place, from planning and coding to security and deployment. The company is also leaning harder into AI, deepening its GitLab Duo offerings to automate code reviews and vulnerability fixes. Additionally, GitLab is expanding its managed service footprint through a major cloud partnership, giving it another route to reach enterprise customers.

The latest quarterly results showed progress on profitability despite the restructuring. Net loss narrowed to $8 million from $22 million a year earlier, and adjusted earnings per share turned positive at $0.09, compared with a loss of $0.04 per share in the same quarter last year. Free cash flow came in at $38 million, and GitLab ended the quarter with $1.2 billion in cash and equivalents. Dollar-based net retention was 118%, which remains strong even though it slipped from 125% a year ago.

Guidance for the current quarter expects revenue between $286 million and $290 million, with adjusted EPS of $0.10 to $0.11. For the full year, the company guided for revenue of $1.18 billion to $1.20 billion and adjusted EPS of $0.42 to $0.47. That range lines up closely with what Wall Street was already expecting, so the outlook is more of a reset than a collapse.

Morgan Stanley downgraded the stock to “Equal Weight” and cut its price target to $48 from $62, saying the restructuring shows how quickly enterprise spending patterns have shifted. Goldman Sachs stayed bullish, keeping a “Buy” rating and a $60 target, while Needham’s Mike Cikos called the selloff overdone and kept a “Buy” rating with a $65 target. The Street's overall ratings of GTLB have dimmed in the past three months, slipping the stock from a consensus “Moderate Buy” into a “Hold” over the last month.

The market is punishing the stock for slower growth and a painful restructuring. But the business is still growing, margins are improving, cash is strong, and the valuation looks more reasonable than it did a year ago. This may not be a clean story, but for long-term investors, the panic could be creating an opening.