Sometimes, investors like a company more when it's owned by someone else. That seems to be the case with software developer GitLab (NASDAQ: GTLB), reportedly exploring a potential sale. This news has caused a significant market reaction, with GitLab's stock price increasing by 6.9% to $54.15, while the possible suitor, competitor Datadog (DDOG), saw its stock fall 7.9% to $120.44. Other potential buyers include Google's parent company, Alphabet, which already holds a 22.2% voting stake in GitLab, and IBM.

The potential sale of GitLab reflects broader trends in the tech industry, including consolidation in the DevSecOps (Development, Security, and Operations) sector and increased interest from major players like Google in expanding their software development and cybersecurity capabilities.

Who Is GitLab?

Based in San Francisco, GitLab operates in the highly competitive DevOps market, offering services to help customers develop and deploy software securely. The company faces competition from several players, including Atlassian (TEAM), Microsoft (MSFT), JFrog (FROG), and privately held Cloudbees.

Analysts suggest that industry consolidation trends and concerns about the health of GitLab's co-founder and CEO, Sid Sijbrandij, who controls 45.5% of voting stock, may be influencing the company's openness to a sale. Also, GitLab's stock has underperformed in 2024, retreating about 19%. This performance, combined with the competitive market landscape, may also be playing a role.

An acquisition by Datadog could be attractive as it would broaden its platform into security and software development. However, integrating GitLab's mix of SaaS and on-premises software with Datadog's single cloud platform could pose challenges.

A Look At The Future

What will happen to your stock if you’re a current GitLab investor if they sell? It depends on the deal’s terms. With an all-cash sale, you will get cash in place of your shares at closing. With an all-stock deal, the acquiring company’s stock would replace your GitLab shares. Acquisitions typically involve stock and cash, so it’s usually not a one-to-one ratio.

Analyst sentiment for GTLB is a Strong Buy, with an average 12-month price target of $65.06. Shares are currently trading up at $53.34.

Neither Julie Stoller nor Stocks.News have positions in this company.