HUBS - accelerating to 40% growth?

Hi all,

I’m still new to posting here so hopefully this formatting works ok.

I wanted to raised HUBS here as they reported last night and, having explored their offerings as a customer in the past, I decided to take a peek at what made them pop post-earnings. I liked what I saw and I think there’s a lot of evidence here of an accelerating business moving into the 40-50% grower range. Their last two quarters had sequential growth above 10% and their guidance for the coming year is more bullish than their historical growth indicators.

Their guidance is for 35% growth in the 1H 2021 and 30% growth over their more difficult comps in the 2H 2021. Given their recent beats as well as their run rate leaving 2020, I would have expected slightly lower growth guidance and am impressed with their confidence in hitting those growth estimates. I think we’re seeing a deferred COVID benefit, both because of their flywheel offering list and the slower rate of uptake for smaller businesses in looking toward digital transformation to support their business.

Their mission is to help millions of organizations grow better. Over 103,000 customers in more than 120 countries use HubSpot’s software, services, and support to transform the way they attract, engage, and delight customers.

SAAS, of course, but an important note for this biz is that they’ve struggled to maintain strong net retention…they seem to think they can hold at 100% here and their comments on keeping customers longer (as opposed to them graduating to salesforce) makes me think we could see NRR increase in the coming year.

From the transcript, the call reads like a pretty enthused and excited management team. I had trouble editing as much of it felt relevant, but here’s the snippets that stood out to me:

"Another trend, we’ve seen is a shift in the market’s expectations for B2B software. People now expect it to work
like the consumer software they use in their personal lives. Traditional enterprise CRMs are cobbled together
through lots of acquisitions, and the resulting user experience, well, it’s pretty rough."

"We’re super pleased that our unique approach was recognized just the other day when HubSpot was named the
number two Best Global Software Seller according to user reviews on G2 Crowd. We were wedged right between
Microsoft and Zoom. So much has changed about the relationship between companies and their customers this
year, and so much opportunity still lies ahead."

"In Q4, we added 8,400 net customers, ending 2020 with nearly 104,000 total customers, up 42% year-over-year.
Average subscription revenue per customer of nearly $9,800 was up slightly sequentially, but down a few points

"Domestic revenue grew 27% in Q4, while international revenue growth was 40% year-over-year in constant
currency and 47% as reported. International revenue represented 44% of total revenue in Q4, up 3 points yearover-year.
Deferred revenue as of the end of December was $317 million, a 35% increase year-over-year. Calculated billings
was $309 million in Q4, growing 38% year-over-year in constant currency and 43% as reported. This
reacceleration in constant currency billings growth was driven by strong revenue performance and a positive mix
shift toward Professional and Enterprise subscriptions in the quarter.

"We anticipate revenue growth of 35% in the first half of the year, followed by revenue growth of 30% in the
second half of the year as comparisons become more difficult.

Q from Mark Murphy at JP Morgan:
"So Brian, I have noticed what you pointed out that G2
Crowd had ranked Microsoft, HubSpot and Zoom as the top three software companies for 2021. I thought that
was pretty amazing. I’m wondering when we see that kind of prioritization that you’re getting, should we assume
that marketing budgets are going to shift pretty quickly to digital and to inbound this year? Is that embedded in
your assumption? Or do you see those signs? Or is it more to do with the surge you’ve had in the starter cohorts?
And maybe we’re going to see that converting this year."

A from Brian Halligan, CEO:
"Hey, Mark, thanks for your question. I was super pleased to see that sort of sandwiched between two terrific
software companies, Zoom and Microsoft. And I think it’s just a reflection of a lot of the bets we’ve made over the
last couple of years, products just gotten way better. Our customers are way happier, and they’re given us really
good reviews there on G2. So, really happy about it.
In terms of kind of the second part of your question, I mean, things are good. I mean we’re seeing nice
momentum kind of across all three tiers of the product, the Enterprise, the Pro and the Starter and across kind of
all the geographies. So, feeling good. Things are going well. Thanks for your question."

Brian Halligan in response to Q on net retention and its impact on reaccelarated billings:

"Yeah. I’ll just add to that, like some of the investments we made are really paying off in – is a leading indicator but
NPS, our Net Promoter Score is something we’ve been obsessed about for a couple of years. In this past year, it
went way up, like the investment we made are really paying off. And then graduation rates, typically, somebody is
like a 300 person company has been with us since they were 30 and heading to the 3,000, a lot of times to
graduate there. I just think the power we’ve added to the platform is really paying off, and people are sticking
around longer and enjoying the new sophisticated [indiscernible]"

In response to Q on whether current offerings / service structure can support 1.5 B in revenue:

"Well, when I think of HubSpot, Samad, it’s like the bottom of the second inning in our baseball game. It still feels
early. There is a giant market out there for CRM. We’re kind of mid-transition from moving as a company from
being a marketing app to try and become the number one CRM for scaling companies. So you’re going to see us
continue to improve the product, improve the go-to-market, improve the way we execute. We are sort of tireless in
our desire to get better and to deliver more value to our customers. So continue – it’s not – this isn’t a steady state
kind of company, a lot more investment coming, a lot more innovation, more products, existing products getting
better. It still feels early in my head, my friend."

In response to Q on macro environment:

"If you think about it, like we’re moving from a marketing app to a CRM platform, that CRM market is much bigger
than the marketing app market. And we’re doing – we’re starting to do really well and making a lot of progress on
there. And so the market is large and growing, and so we’re just kind of really well positioned to lean into it.

I also would just say, Stan, like our competitive positioning is super unique and super compelling for prospects
and customers. So our win rates are going up, and our retention rates are going up. Like things are really good.
Some of those bets we’ve been making over the last couple of years we’ve been talking about, they’re really
starting to pay off for us over the last year."

Stan Zlotsky @ Morgan Stanley:
"Okay. Perfect. And now just a quick follow-up. The Starter package promotion, which was a very smart strategic
decision to make through the year and the promotional pricing there, how are you guys thinking about that as you
get into 2021 and some of those – the promotional pricing is going to start rolling off? What kind of retention and
conversion rates are you guys thinking about?"
Response from Kate Bueker, CFO:
"Yes. Thanks for the question. We obviously are paying a ton of attention. I would say, just like stepping back on
that one, what we tried to do in making the changes on the pricing and packaging side there was to just simplify
things. And by bringing it together as a suite, putting forward like a $50 price point, it just really simplifies the
buying process at the low end. And the learning that we have there is that it was really – making it easy is super
compelling. And so we think that was a great choice to make.
We have been watching the upgrade rates closely. We have been watching the usage rates closely, and we’re
feeling good about both of those metrics. So overall, we’re feeling great about that Starter Growth Suite play. We
do have operational plans underway to try to maximize success on the renewal of those big cohorts, and so we
will continue to share that as appropriate."

Kate Bueker, CFO on NRR:
"Yeah. I mean that’s a question we spend a lot of time talking about internally as well. I think you just kind of turned
clock back a little bit, at the time of the IPO, we had sort of a net retention in the mid-90s%. Over the last couple
of years, that has stepped up, and we’ve been saying in and around 100%. Look, we’ve reached a new gear here
in the last couple of quarters, and we’re not calling a new normal, but the performance over the last couple of
quarters, certainly gives me a lot of confidence that we’ll be able to keep retention at or above 100%."


Per:  21Q1*  20Q4    20Q3   20Q2   20Q1   19Q4   19Q3   19Q2  19Q1
Rev $ 262.5  252.1   228.4  203.6  199.0  186.2  173.6  163.3 151.8
YOY % 31.9%  35.4%   31.6   24.7%  31.1%
QOQ %  4.1%  10.4%   12.2%   2.3%   6.8%   7.3%   6.3%   7.5% 

  • Guidance

I’ve taken a small position after reviewing all this. Admittedly, it’s not the fastest grower we have here, but their bullishness really paints a picture of a company with green fields ahead. Their current EV/S is in the 25-30 range which strikes me as cheap for the company that’s coming out of this earnings report. I’d love to hear folks’ thoughts.