Late last year, OMERS Growth Equity (OGE) made an investment in GitLab a leading provider of software tools for developers. As demonstrated before and during the COVID-19 pandemic, the role of software is proliferating across industries and companies. Central to this overarching trend is the growing importance of the software developer — and ensuring that their productivity is enabled with a suite of tools and capabilities.
DevOps tools help developers to write code and deploy software faster. DevOps describes an agile and collaborative relationship between application development and IT operations teams with the primary goal of accelerating and improving the efficiency and reliability of new software releases.
OGE strongly believes in the importance of DevOps tools as an enabler of the proliferation of software across industries. DevOps-focused companies are able to deploy code 208 times more frequently than firms using traditional methods, make hundreds of updates per day which is a dramatic change from the common quarterly release cycle (e.g., Amazon releases new software code to production every 12 seconds, or 7k times per day, on average), and understand roadblocks to create an atmosphere of accountability and collaboration within teams. We see DevOps as a multi-billion-dollar market growing at faster than 25% p.a. for the next five years, buoyed by increasing penetration of the tools across developers and enterprises.
OGE has spent the past year researching the DevOps industry and meeting with dozens of companies. We believe that GitLab has emerged as the most attractive “suite” player within the ecosystem. The company offers products that span across the entire software development lifecycle and is well positioned to sell to enterprises. Furthermore, as the company is based on open source standards, there is a network effect whereby as the company grows and fosters the underlying open source ecosystem this drives incremental product innovation from the wider community. GitLab has strong SaaS metrics with top tier net dollar retention, high gross margins, and rapid annual recurring revenue growth with strong sales efficiency.
Although company valuations in the DevOps market are elevated, we believe that these valuations are justified because the DevOps penetration rate is rapidly inflecting among SMBs and enterprises, DevOps tools demonstrate infrastructure-like mission criticality, and many DevOps companies have strong underlying fundamentals (e.g. high net dollar retention rates, high gross margins). We are optimistic about the future of GitLab and the DevOps ecosystem as more companies integrate software into core processes. If 2020 has taught us anything, it is that both technology and software are here to stay. More and more companies, even in traditional industries, are becoming software-centric.