HubSpot: A More Competitive Valuation

HubSpot NYSE: HUBS is one of the leaders in the CRM space. But like other tech companies, its stock price has been severely discounted. The selloff in HubSpot’s share price has been seen by some analysts as a correction towards a more realistic valuation. At its peak, the company was trading for $866 per share and at 30x its sales. Another thing that worked against the company’s high valuation is the fact that its historic growth rate was good, but by no means meteoric to warrant such a high stock price at a 47% annual growth rate in 2021. Now that the stock has come back to Earth again, some investors have started considering adding Hubspot into their portfolios at a significant discount. Shares for the company are currently down 41.85% and trade 45% below the MarketBeat consensus price target.

HubSpot’s Q1’22 Results

HubSpot had a successful Q1’22. The company increased its top line and reduced its net loss compared to last year's first quarter. HubSpot also managed to increase metrics that foreshadow revenue and profitability. Its number of customers grew 26% to 143,689 and its average subscription revenue per customer grew 12% to $11,030. Revenue increased 41% in Q1 to $395M. Subscription and professional services revenue contributed to this figure by $385M and $10.6M respectively. 

While the company is currently unprofitable, it is taking steps to reduce its losses. GAAP net loss was $9.3M compared to $23.2M in Q1’22. Non-GAAP net income stood at $27.5M compared to $15.7M over the same time period. Other aspects of the company’s financial position were positive, including its balance sheet and cash flows. HubSpot’s balance sheet of cash, cash equivalents, and short-term and long-term investments balance was $1.4 billion. The company also managed to bump up its free cash flow to $62.6M compared to $61.2M in Q1'21.

Along with the company’s Q1 results, HubSpot also issued guidance for Q2’22 and for the rest of the year. Revenue for the next quarter is expected to be between $409M to $410M. Its Non-GAAP operating income is expected to be in the range of $27M to $28M. Total revenue for FY 2022 is expected to fall between $1.7B and $1.8B with a non-GAAP operating income of $152M and $154M.

HubSpot’s Opportunities for Growth

HubSpot’s CRM software has multiple aspects for continuing its product innovation and R&D to help reach more monetized users and expand its revenues. One popular feature the company rolled out is its customer portals, which consolidate multiple support tools into one platform for ticket and knowledgebase management. The company also continues to roll out additional integrations between its platform and others such as with Xero, NetSuite, and others. A beta feature that's in the works will soon allow users to receive engagement reports of leads and prospects right within the HubSpot application. These insights can then further be integrated into a marketing automation system with triggered events such as sending personalized emails and content. This builds on the company's mission of being a total insight and automation suite that helps build a strong competitive moat for the company.

HubSpot Technical Analysis

With increasing revenues and lower valuation metrics such as price-to-sales, HubSpot has become a more attractive opportunity for many investors. Still, this has not stopped the stock from shedding the majority of its value from its previous high and its losses have consolidated to what could be considered a bottom for the stock. 

The price action for HubSpot has consolidated into a tight range with low levels of volatility. Volumes are also in the middle ranges which suggests that they will continue consolidating for the time being. Since volatility is contracting, this is likely foreshadowing an expansion of volatility in the near future and a decisive price movement.