HubSpot (NYSE:HUBS) beats third-quarter expectations, shares rise

Sales and marketing software maker HubSpot (NYSE:HUBS) announced better-than-expected revenue in the third quarter of 2024, with revenue up 20.1% year over year to $669.7 million. The company expects revenue next quarter to be around $673 million, close to analyst estimates. Non-GAAP earnings of $2.18 per share were also 14.2% above analyst consensus estimates.

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• Gain: $669.7 million vs. analyst estimates of $647.3 million (3.5% better)

• Custom EPS: $2.18 vs. analyst estimates of $1.91 (14.2% better)

• Revenue guidance for Q4 CY2024 is $673 million in the middle, about in line with what analysts expected

• Management raised expectations for full-year adjusted earnings per share to $7.99 at the midpoint, up 4.2%

• Gross margin (GAAP): 85.2%, in line with the same quarter last year

• Operating margin: -1.4%, compared to -3.3% in the same quarter last year

• Free cash flow margin: 18.6%, compared to 13.8% in the previous quarter

• Customers: 238,128, compared to 228,054 in the previous quarter

• Invoices: $666.5 million at quarter end, up 21.3% year over year

• Market capitalization: $29.69 billion

Founded in 2006 by two MIT students, HubSpot (NYSE:HUBS) is a software-as-a-service platform that helps small and medium-sized businesses market, sell and get found on the Internet.

Companies must be able to communicate with their customers and sell to their customers as efficiently as possible. This reality, coupled with the continued migration of enterprises to the cloud, is driving demand for cloud-based CRM (Customer Relationship Management) software that integrates data analytics with sales and marketing functions.

Examining a company’s long-term performance can provide clues about business quality. Any company can perform well for a quarter or two, but the best ones grow consistently over the long term. Fortunately, HubSpot’s revenue grew at an impressive annual rate of 28.4% over the past three years. This is encouraging because it shows that HubSpot’s offering is resonating with customers, which is a useful starting point.

This quarter, HubSpot reported robust year-over-year revenue growth of 20.1%, and revenue of $669.7 million exceeded Wall Street estimates by 3.5%. Management currently expects a 15.7% year-over-year increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow by 14.5% over the next twelve months, a slowdown from the past three years. Still, this projection is admirable and illustrates that the market is seeing success for its products and services.

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In addition to revenue, billings are a non-GAAP metric that sheds additional light on HubSpot’s business quality. Billings is often called “cash revenue” because it shows how much money the company has collected from customers in a given period. This differs from revenue, which must be recognized in parts over the term of a contract.

Over the past year, HubSpot’s billing growth has been impressive, with an average increase of 21.5% year over year and an increase of $666.5 million in the last quarter. This performance was in line with revenue growth, indicating robust customer demand and a strong sales pipeline. The high level of cash raised from customers also improves liquidity and provides a solid foundation for future investment and growth.

HubSpot reported 238,128 customers at the end of the quarter, an increase of 10,074 from the previous quarter. That’s slightly slower customer growth than last quarter, but in line with what we’ve seen in recent quarters, suggesting the company still has decent sales momentum.

We were impressed by HubSpot’s optimistic full-year EPS forecast, which exceeded analyst expectations. We were also pleased to see the billings outperform Wall Street estimates. On the other hand, customer growth was slightly slower. Overall, we think this was still a very solid quarter, with some key positives. The stock rose 8.7% to $650 immediately after the results.

HubSpot indeed had a very strong quarterly result, but is this stock a good investment here? When making that decision, you need to consider the bigger picture of valuation, business qualities and most recent earnings. We cover that in our useful full research report which you can read here. It’s free.