HubSpot’s Growth in CRM: Can It Compete With Salesforce?

Key Points

• HubSpot is much smaller than its rival Salesforce, but the CRM firm's recent acquisition of Cacheflow could bolster its fast-growing invoices and payments service.
• HubSpot recently reported better-than-expected results for the third quarter, including strong customer base growth.
• Both of these firms have experienced share rallies this year, at least in part because of anticipation of how they could benefit from expanded AI demand.

The market for customer relationship management (CRM) software and services is growing rapidly. Total revenue of more than $89 billion industry-wide is anticipated for 2024, and analysts expect this figure to climb to nearly $146 billion annually by 2029. Businesses utilize CRM tools to manage and analyze customer data, record interactions with customers, streamline operations and identify and build new customer relationships. Because CRM is widely applicable across industries and is primed to benefit from the expansion of AI, companies in this industry have a broad appeal to investors.

Two major firms in the CRM space are HubSpot Inc. NYSE: HUBS and Salesforce Inc. NYSE: CRM. Although they are rivals, these two companies have, for many years, maintained a unique agreement to integrate their products for customers in an effort to foster a free, collaborative CRM ecosystem.

That's not to say, however, that HubSpot and Salesforce are the same or that they do not compete with one another. Notably, though, Salesforce is nearly 10 times as large as HubSpot in terms of market capitalization, so a direct comparison of the two firms has traditionally been complicated. HubSpot appeared to be poised to grow in size—or at least to have access to significant additional resources—like its larger peer early in 2024 when Google parent Alphabet Inc. NASDAQ: GOOG briefly considered acquiring the company, though HubSpot's stock plunged when the deal fizzled.

Cacheflow Acquisition Supports Fast-Growing Commerce Hub

One of HubSpot's latest and most important launches is Commerce Hub, an invoicing and payments service. Since it was unveiled in 2023, Commerce Hub has facilitated over $1 billion in gross merchandise volume.

In October 2024, HubSpot completed the acquisition of Cacheflow, a B2B subscription billing management company that also provides configure, price, quote (CPQ) tools. CPQ has become a critical way for many businesses to set prices for their products. Cacheflow will be integrated into Commerce Hub to make the latter significantly more robust.

Salesforce already offers a CPQ service as part of its Sales Cloud service. HubSpot's bulked-up Commerce Hub offering is now ready to compete more equally with this alternative service, which will likely be a boon for the smaller firm.

Q3 Results Inspire Optimism

HubSpot's third-quarter earnings results have been another bright spot in the company's recent history. In this period, HubSpot reported a 20% year-over-year improvement in revenue—a reversal of a downward pattern earlier in the year—and a swing to more than $8 million in net income from a net loss in the prior-year quarter. Gains in both the company's subscription services and professional revenue streams helped drive these results.

Notably, HubSpot also grew its customer base by 23% from the end of September 2023 to one year later. It also generated nearly $160 million in operating cash flow in the third quarter, approaching double the figure generated a year ago. Both of these are signs that HubSpot is likely to be durable going forward, with at least some of that shift likely due to the Cacheflow acquisition. Company management increased full-year guidance for free cash flow, likely in part because of improving margins.

Analysts are largely optimistic about HubSpot, with 19 out of 24 firms rating the company as a Buy. Following its early-November 2024 earnings report, HubSpot received reiterated votes of confidence from analysts at Goldman Sachs and elsewhere. However, Piper Sandler lowered its rating for the stock at the same time after it rallied more than 18% in the last month.

HubSpot vs. Salesforce

With its much larger footprint, Salesforce could be better prepared to capitalize on surging AI demand than HubSpot. Anticipation of this demand has likely helped to fuel both stocks' growth in the last year—Salesforce has climbed by about 51% and HubSpot by 53%.

Both firms may continue to benefit from this widespread technological shift. For investors looking for a company that still has room to expand its product offerings and may be able to adapt, especially nimbly, thanks to improving cash reserves and a rapidly growing customer base, HubSpot has become an increasingly attractive investment option.