HubSpot (HUBS) Up 14.5% Since Last Earnings Report: Can It Continue?

It has been a month since the last earnings report for HubSpot (HUBS). In this time, the stock has risen around 14.5%, outperforming the S&P 500 index. Now, investors are wondering if this positive trend will continue until the next earnings report or if the stock is poised for a decline. To gain insights into this, let’s first review the latest earnings report to understand the key factors at play.

HubSpot's Q3 Earnings Beat Estimates on Solid Revenue Growth

HubSpot delivered strong results for the third quarter of 2024, exceeding expectations for both revenue and earnings. The company experienced year-over-year growth in its revenues, driven by increased user engagement across all service lines. Additionally, the use of advanced artificial intelligence tools within its products has contributed to this growth. However, the company is facing some challenges, including clients being cautious about spending amid a tough economic climate.

Net Income

On a GAAP basis, HubSpot reported a net income of $8.1 million, or 16 cents per share, compared to a loss of $3.6 million, or 7 cents per share, from the same quarter last year. This improvement is mainly due to significant growth in net sales.

On a non-GAAP basis, net income rose to $116.6 million, or $2.18 per share, from $84.9 million, or $1.62 per share, in the previous year. This figure was a 29-cent beat over the Zacks Consensus Estimate.

Revenues

HubSpot's quarterly revenues climbed to $669.7 million, up from $557.6 million a year earlier. This revenue also surpassed the Zacks Consensus Estimate of $647 million. The company is seeing consistent multi-hub adoption among professional and enterprise clients, especially in the premium market sector, which has been a key growth driver. Demand for its marketing and sales hubs remains strong, while the service hub is gaining traction as well. There has also been healthy growth in the starter edition and efficient pricing strategies that have improved net sales.

The integration of HubSpot AI throughout its platform has allowed users to access AI features at no additional cost. Tools like GPT-powered chatbots and real-time recommendations are becoming popular among clients, assisting them with tasks ranging from drafting marketing emails to generating personalized content.

During the quarter, HubSpot welcomed 10,000 new customers, which brought the total customer count to 238,128, a 23% increase year-over-year.

Subscription revenues increased to $654.7 million from $545.8 million in the prior year. However, the average subscription revenue per customer fell 2% to $11,235. The professional services and other revenues also saw an increase, rising to $15 million, marking a 28% growth from the previous year.

Other Details

Gross profit for the quarter was reported at $570.4 million, improving from $471.9 million in the same quarter last year. Operating loss, calculated on a GAAP basis, was $9.6 million, compared to a loss of $18.6 million a year earlier. Furthermore, non-GAAP operating income increased to $125.2 million, from $92.1 million, reflecting margins of 18.7% and 16.5%, respectively.

Cash Flow & Liquidity

In Q3 2024, HubSpot generated $159.5 million in cash from its operating activities, compared to $89 million in the prior year quarter. As of September 30, 2024, the company had $410.1 million in cash and equivalents and $457.7 million in convertible senior notes.

Outlook

For the fourth quarter of 2024, HubSpot expects revenues to range between $672-$674 million and non-GAAP operating income to be in the vicinity of $128-$129 million. Expected non-GAAP earnings are projected to be around $2.18-$2.20 per share.

Given the positive momentum, the company has updated its guidance for 2024. Revenues are now anticipated to be between $2.597 and $2.599 billion, a notable increase from earlier estimates of $2.567-$2.573 billion. Non-GAAP operating income is now projected to be within $455-$456 million, up from $437-$441 million previously estimated. The projected non-GAAP net income per share is likely to fall between $7.98-$8.00, an improvement over the earlier estimate of $7.64-$7.70.

How Have Estimates Been Moving Since Then?

Over the last month, analysts have seen a trend of upward revisions in estimates. The consensus estimate shifted by 106.19%, reflecting positive changes.

VGM Scores

Currently, HubSpot holds a strong growth score of A but lags in momentum, earning a score of C. On the value front, the stock received an F, placing it in the fifth quintile for this investment strategy. Overall, the stock maintains an aggregate VGM Score of B, which is worth noting if an investor is looking for a diversified strategy.

Outlook

With estimates on the rise and the magnitude of these adjustments looking encouraging, it’s no surprise that HubSpot has a Zacks Rank #2 (Buy). It is expected that the stock will yield above-average returns in the upcoming months.

Performance of an Industry Player

HubSpot operates within the Zacks Internet - Software industry. In the past month, Meta Platforms (META) has experienced gains of 2.9%. The company reported its results for the ended quarter in September 2024 more than a month ago.

Meta Platforms announced revenues of $40.59 billion for the last quarter, reflecting an 18.9% increase year-over-year. Earnings per share for this period were $6.03, compared to $4.39 from the previous year.

For the current quarter, Meta Platforms is expected to report earnings of $6.76 per share, representing a year-over-year increase of 26.8%. Over the last month, the Zacks Consensus Estimate for Meta has changed by +0.6%.

Meta Platforms also holds a Zacks Rank #2 (Buy), driven by positive estimate revisions and is assigned a VGM Score of B.

HubSpot, Earnings, Growth, Revenue, AI