HubSpot Continues to Impress With Growth and Profitability in Uneven Macro; FVE Up to $425

HubSpot HUBS reported good results with both revenue and non-GAAP operating profit coming in above the high end of guidance. The outlook was better across the board compared with our model, with 2023 non-GAAP operating profit a staggering 60% above our estimate. The firm’s high-value software helps attract customers, while feature-rich offerings and multiple modules help drive upsells. This dynamic was on full display even during continued macro uncertainty. We raised our near-term estimates, particularly on profitability, over the next several years, and as a result we are raising our fair value estimate to $425 per share, from $395 previously. We continue to view HubSpot as well positioned in marketing and sales automation software, with an expanding portfolio and a robust growth profile coupled with solid execution. With shares up nearly 50% since early January, we now see shares as modestly undervalued.

Fourth-quarter revenue of $470 million grew 27% year over year as reported, or 35% year over year in constant currency, and was above the high end of guidance at $446 million. Billings growth increased by 29% year over year in constant currency to $542 million, which, while decelerating, is still good performance. Management indicated macro pressure was unchanged since last quarter, with longer sales cycles and emphasis on time to value.

Metrics were impressive, with average subscription revenue per customer growing 3% year over year to $11,200, suggesting continued use of multiple hubs, which management confirmed with momentum showing in multi-hub deals. HubSpot added approximately 8,400 new customers in the quarter, bringing the total to over 167,000, representing 24% year-over-year growth. HubSpot’s model has hit a sweet spot with low-end customers in a free or starter tier and larger customers consolidating on the platform with multiple products. Gross retention remained in the high-80% area, while net retention was 107%.