2 weeks Ago By Thomas Claburn
For the third time in five months, GitLab or its execs have been sued over allegedly misleading investors about AI capabilities and demand. The initial complaint [PDF], a federal securities investor lawsuit, was filed on September 9, 2024, and subsequently amended [PDF] with more detail on February 5, 2025. Soon after, two derivative lawsuits were filed: one [PDF] on February 14, 2025, and the other [PDF] on February 19, 2025.
In a derivative suit, shareholders sue executives or board members on behalf of the company itself, usually over alleged mismanagement or breaches of fiduciary duty. Unlike the securities complaint aiming to compensate investors, the derivative complaints seek relief from individual executives to be paid to the company, along with management reforms. The allegations in the amended complaint cover the period from June 5, 2023 through June 3, 2024, when GitLab began rolling out Duo , which the code hosting firm describes as "a powerful set of AI capabilities within GitLab's DevSecOps Platform" for "suggesting code, explaining vulnerabilities, forecasting value streams, and much more.
" GitLab Duo Chat reached general availability in April 2024 , and Duo Enterprise met that milestone in August 2024 . The three lawsuits allege GitLab executives overstated AI adoption rates and misled investors about customer demand: "Throughout the class period, GitLab and those who ran it – particularly its co-founder, chairman and chief executive officer Sytse Sijbrandij and its chief financial officer Brian Robins – touted the capabilities of the company’s artificial intelligence ('AI') features driving market demand, providing expanded monetization opportunities through its paid add-on, GitLab Duo, and supporting a 53 percent price increase of its most utilized paid offering, known as its Premium tier." GitLab at the time offered Free, Premium, and Ultimate tier subscriptions.
On March 2, 2023, the biz announced it would increase the price of its Premium offering from $19 to $29 per user per month, effective April 3, 2023, representing a 53 percent increase. At the time, according to the amended complaint, about 60 percent of GitLab’s revenue came from Premium subscriptions. Management, it's argued, assured investors that customers would accept the new pricing model and welcomed AI integration, which wasn't what ultimately happened.
GitLab was struggling to sell its new AI features to its customer base and was experiencing a decline in net seat expansion "Defendants assured investors of customer acceptance of its new pricing model and AI integration at every phase of the software development lifecycle, providing positive customer testimonials and promoting the company’s renewals and churn rates, when, in fact, market demand for GitLab’s AI product was materially different than represented due, in part, to: significant concerns amongst potential customers regarding security and data privacy; GitLab’s AI features did not possess the capabilities expressed; deployment was delayed; and when GitLab’s AI features were made available to customers, feedback was largely negative," the amended complaint says. "Consequently, GitLab was struggling to sell its new AI features to its customer base and was experiencing a decline in net seat expansion, due to price sensitivity particularly amongst its small to mid-market customers – accounting for roughly 30 percent of its revenue." On March 4, 2024, GitLab reported its Q4 2024 financial results – $163.
8 million in revenue (33 percent year-over-year growth) and $579.9 million in annual revenue (37 percent growth). But its fiscal 2025 guidance predicted revenue between $725 and $731 million, marking a slower 26 percent increase.
GitLab attributed this to "normalization in buying behavior." Its stock saw a 21 percent drop to $58.84 the following day.
The amended complaint points to the introduction of what it calls "SMB Premium Tier" on July 1, 2024 for $19 per user per month as a sign that the Premium tier increase to $29 was ill-advised. As far as we can tell, that was a special promotional offer available between July 1, 2024, and September 3, 2024. In June 2024, GitLab issued its 8th annual Global DevSecOps Report, which "[underscored] the mixed sentiments surrounding security, developer productivity, and AI's role as a catalyst and a potential risk.
" The litigants observe that GitLab's survey showed "that customers were reluctant to adopt AI features across all areas of the software development lifecycle," in keeping with corroborating accounts obtained by interviewing former employees. But this AI hesitancy wasn't being communicated to investors, it's claimed. GitLab did not respond to a request for comment.
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