Over on the weekly analysis board we looked at HubSpot (HUBS) this past week. It’s not profitable yet, and they don’t think they’ll be cashflow positive until 2016, so I don’t think it’s a Saul-type investment. However, anyone invested in CRTO should really go learn about HubSpot because they’re a disruptive online marketing and sales company with an alternative approach that is addressing the issues like ad-blocking that is causing angst on this board with CRTO.

I’ve only scratched the surface of this company, but I also believe – though I’m not positive – that they are losing money in the same way that Solar City “lost” money: large upfront costs for on-boarding a customer that leads to a very nice lifetime value with recurring (and growing) income for many years. As revenue and on-boarding is growing rapidly at this stage, the company’s upfront costs are high and show up as negative (but improving) margins.

But anyway, I’m not pitching it as an investment, but as something to be aware of for Criteo investors.

Here’s the meat of my brief summary writeup, but I would really recommend reading through the 10K and the last couple of conference calls to get a better sense of what this company is doing:

HubSpot (HUBS) provides a comprehensive cloud marketing and sales platform aimed at medium-sized businesses (especially B2B) that is formed around the concept of “inbound” marketing, which its cofounders pioneered (and literally wrote the book on).

Inbound marketing is based on the idea of bringing customers to you, rather than going out and chasing them. As customers get more empowered with technology, reaching out to them isn’t as effective as it used to be (they do their own research online instead of relying on a company’s sales people, they don’t answer their phones if they don’t recognize the number of the caller, they direct unsolicited marketing emails to their spam folders, they use ad-blockers to filter out your online ads, they ask their social-media network for their opinions and experiences with a company before doing business with them, they look for recommendations from thought leaders on Twitter or on reputable blogs, etc). Inbound marketing is about building up an online presence that serves as an asset that will bring in leads over time as they recognize the value a partnership would bring.

HubSpot’s integrated applications include social media, search engine optimization, blogging, website content management, marketing automation, email, CRM, analytics and reporting — and everything is stored in a single database with full integration amongst all the tools.

Traditionally, businesses use separate tools for each of these functions, which makes it very difficult to pull together a comprehensive view of marketing performance, customer and lead interaction with various parts of the business, and followup sales performance for various marketing channels. As CEO Brian Halligan puts it on a recent conference call:

Our customers, they need a blog, they need a website, they need social media monitoring and they need search engine optimization and typically that will be four different vendors they’ll have to deal with in order to get that right. And that’s pretty painful…

HubSpot pulls everything together into a unified platform. In their 2014 10K, HubSpot says analysis of clients in 2012 and 2013 showed that they experienced a 5.7x increase on average in the number of leads that they generated after 12 months of active use of the platform.

It sells that platform using inbound marketing itself, as well as by utilizing marketing partners that, themselves, rely on HubSpot to produce inbound marketing for their clients.

Customers seem very happy with it, awarding the company honors as the top automated marketing suite on G2 Crowd (which is like a Glassdoor, but for customers instead of employees). And speaking of Glassdoor, HubSpot is ranked as the #15 best small-medium business to work for in the U.S., 98% approve of the CEO, and 94% would recommend the company to a friend. So its employees are pretty happy too.

From a financial point of view, the company is not profitable and has a negative (but improving) operating margin even on a non-GAAP basis. I’m still a little fuzzy on this, but my impression is that the on-boarding process requires a lot of hand-holding as HubSpot works directly with customers to train them on the tools and launch their first inbound marketing campaigns, resulting in significant front-loaded costs. However, management focuses on the total lifetime value of customers and believes that that ratio is very favorable.

It may be worth mentioning at this point that the HubSpot platform is sold on a subscription basis, so it brings in recurring revenue. And it’s priced based on both feature set (Pro vs. Enterprise) as well as the number of contacts a client stores in their HubSpot database. So the upshot is that, as a customer sees success and grows, HubSpot’s revenues from that customer grow as well.

Revenue has grown over 50% YoY for the past couple of quarters, and the company expects to be cash-flow positive in 2016, though it will continue to heavily invest in attracting new customers. Right now, the company has around 15,000 customers and believes there are over 1.6 million just in North America alone, and another 1.4 million in Europe. The company has a small international presence for English-speaking countries, but is beginning to invest in foreign-language support as well. So the total addressable market is very large.