HubSpot Earnings: Value Proposition Shines With Another Good Quarter in Choppy Environment

HubSpot Stock at a Glance

• Fair Value Estimate: $445
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow

HubSpot Earnings Update

Similar to last quarter, wide-moat HubSpot HUBS reported good results with both revenue and non-GAAP operating profit coming in above the high end of guidance. The 2023 outlook was raised on both the top and bottom lines. The firm’s high-value software helps attract free and low-price tier customers, while feature-rich offerings and multiple modules help drive upsells. This has been the case in recent quarters as well, and the value proposition and vendor consolidation available to mid-market clients was apparent, as macro uncertainty seems to benefit HubSpot relative to peers.

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 $445 per share, from $425 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 the beginning of the year, we now see shares as fairly valued.

First-quarter revenue of $502 million grew 27% year over year as reported, or 30% in constant currency, and was above the high end of guidance at $475 million. Billings growth increased by 28% year over year in constant currency to $533 million, which, while decelerating, is a good result. Management indicated macro pressure was unchanged since last quarter, with longer sales cycles and emphasis on time to value.

Our long-term profitability outlook is unchanged. Non-GAAP operating margin was 13.5% for the quarter, compared with 8.8% last year, and was well above the high end of guidance. The company executed a reduction in force and facility rationalization during the quarter and temporarily paused hiring, which boosted margins. We remain confident in HubSpot’s growth prospects and see continued investments in sales and product development as prudent.