At analyst day today, Hubspot launched a payments offering. This was already a company that I found compelling. The last 4 quarters have all seen sequential QOQ growth above 10% and the guide is for 4.9% sequential growth, which with their recent beat track record would come in around 10% again. My estimates put this at a steady 50% grower in a huge TAM, slated to end FY21 with over $1.3B in revenue. At a mkt cap of ~$35-40B, this was an interesting holding for me when comparing to a company like NET, which has a similar growth rate in a similarly huge TAM, but my estimates put their FY21 revenue at $640M. NET’s market cap is hovering in the $45-50B range. I love NET and do believe it deserves a higher multiple, but I can’t not look at these two next to each other and see room for Hubspot to run and run.
The primary knock on Hubspot historically been their retention rate, but I think there’s strong evidence that they are innovating in ways that will remedy that. A company growing at 50% that starts increasing its dollar-based retention rates could be back in hypergrowth even at their huge annual revenue run rate.
Okay, so that’s the backdrop for why I’m bothering to post at all – they announced that they are launching a payments offering today. Given their customer base and their software position (deep integration with customer ops already), this seems like a huge opportunity and one that would threaten Bill.com’s current position.
The more I look at it, the more I think this is a company that is only now getting its flywheel in place even though it has over a $1B in annual run rate and is already posting 50% YOY growth at that scale. That could lead to pretty compelling results for a long time to come.
I’ve been long HUBS for a while now, though regrettably I trimmed last week to put more into LSPD at its current prices. Will be adding more on this payments news.
More on the payments offering launch here: https://ir.hubspot.com/news/hubspot-payments
A quick copy and paste from my spreadsheet on recent financial results.
Quarter Guide Revenue Y/Y Growth QOQ Growth
21Q3 326 42.73% 4.89%
21Q2 295 310.8 52.65% 10.45%
21Q1 262.5 281.4 41.41% 11.62%
20Q4 236 252.1 35.39% 10.38%
20Q3 210.5 228.4 31.57% 12.18%
Why do u think it’s a threat to BILL’s business? I don’t think so. In my eyes this is another company which also launched payments in additional to other (core) services it provides to its clients. Think Coupa, Lightspeed, Bill.com etc etc. On the one hand, payments broaden company’s offering and bind stronger a client to the company which reinforces the moat (think switching costs). On the other hand, they are doing what others are already doing and for me it only strengthens investment thesis on Bill.com and Lightspeed. If others are following what u r doing in the business it proves that u r doing something special.
At the end the business results will show how it goes but as of today I consider this move by HUBS as a positive to my long theses on both LSPD and BILL. Unless there will be arguments provided to prove the opposite.
I didn’t intend to mean that as any sort of bear case for Bill.com. I think they’re operating in a huge TAM and that their service is good. I meant it more so as an indication of the opportunity and growth that exists within the B2B payments sphere, particularly in the SMB market.
That said, I’ve never quite gotten over the hump personally with Bill.com’s thesis. I worry that it’s long-term opportunity will be eroded by the likes of Intuit, Microsoft, Oracle and others bringing better payments services in house. I perceive their advantage today to be primarily a weakness in the cloud offerings from Intuit, Microsoft, and Oracle. I’m not convinced that their AI & workflow differentiators will hold up long-term when other services that have more customer/vendor data and workflow enter the space.
I don’t have direct experience with Bill.com’s integrations, but my experience is that many integrations in small and midsize businesses leave a lot to be desired – they flow one-way or not all data flows through. For many businesses, an inferior offering from an existing service provider could very well win out against Bill.com’s superior offering. I’ve also hesitated to implement Bill.com in my own small business as I haven’t liked the onus that it puts on the payer / payee to setup an account with Bill.com – it’s always felt like unnecessary friction.
In this sense, I do see how Hubspot’s payment offering could take some market share from Bill.com if some of Hubspot’s 100,000+ customers decided to operate their AR operations through Hubspot (where the cost of this service appears to be transactional fees) as opposed to adding Bill.com at $49+ per user (on top of transactional fees).
All of which is to say that I really like Bill.com’s offering and the opportunity in the space in which they operate, but haven’t talked myself into an investment in BILL yet.