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HubSpot Earnings: Compelling Value Proposition Helps Drive Another Good Performance

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HubSpot Inc
(HUBS)

Similar to the last couple of quarters, narrow-moat HubSpot HUBS reported good results with meaningful upside to revenue and profitability relative to the high end of guidance. It raised its 2023 outlook on the top and bottom lines, and third-quarter guidance was better than we anticipated. We think the reason for the negative stock reaction in after-hours trading reflects the more rapid slowdown in billings growth relative to revenue growth, coupled with a step down in customer additions during the quarter.

Given good results and guidance, we are raising our fair value estimate to $480 per share from $445. We continue to view HubSpot as well positioned in the midmarket for marketing and sales automation software, with an expanding and powerful portfolio and a robust growth profile coupled with solid execution. The shares are up sharply since the beginning of the year, and we see them as fairly valued.

Second-quarter revenue of $529 million grew 25% year over year as reported, or 26% in constant currency, and was above the high end of guidance at $505 million. Billings growth increased 22% year over year in constant currency to $542 million. Billings growth decelerated appreciably more than revenue growth, which is worth monitoring. Management indicated macro pressure was unchanged over the last several quarters, with more approvals required, more cautious purchasing, and trade-downs to lower product tiers.

Our long-term profitability outlook is unchanged. Non-GAAP operating margin was 14% for the quarter, compared with 7% last year, and was well above the high end of guidance. Slower hiring over the last couple of quarters coupled with the reduction in force and facility rationalization last quarter boosted margins. HubSpot plans to ramp up hiring as the year progresses. While we do not doubt the intention, we think this could be an easy lever to pull if the environment remains cautious.

(Aug. 3, 2023): An earlier version of this note referred to the incorrect quarter.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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