Saul, you’re looking prescient regarding HUBS – it’s down almost 20% this month. Do you think what you said here (about the conference) has anything to do with it? Or is the market seeing other problems?

Hi Bear
I personally don’t see other problems. Their Conference Call was very enthusiastic, besides. I think everyone is just waking up to the fact that their enormous beat in the Sept quarter was partly due to no big conference, with its big expense.

However, lets look at the two quarters together: Last year they lost 27 + 12 = 39 cents in the last two quarters. This year they are predicting 5 + 21 = 26, so they are eating up a third of their loss in six months. And they surely expect to beat the loss of 21 cents, or they wouldn’t be guiding to it. For the entire year last year they lost 74 cents. This year they are guiding to 44 cents. They probably expect to beat that too (as it’s based on the 21 cents for the Dec quarter). So they are reducing their loss by 30 cents, or 40%. Last year they reduced it by 23 cents. Their customer count was up 29% in Sept yoy. Their renewable subscription revenue was up 11.6% on each customer. They will easily be Operating Cash Flow positive for the year (for the first time).

I’ve been adding back to my position on the drop, but it’s still a below average position for me (but not a small one).


Their customer count was up 29% in Sept yoy. Their renewable subscription revenue was up 11.6% on each customer.

Thanks. Just wanted to make sure I wasn’t missing something obvious. With growth like theirs, I’m not super worried about earnings, yet. Just wondering what the market is telling us. I’ve been adding a little too, although it was already a mid-sized position for me.


Can anyone point me to other pertinent posts about HUBS on this board?
I just read Bert’s article from June on the company and am interested in learning more.


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Can anyone point me to other pertinent posts about HUBS on this board? I just read Bert’s article from June on the company and am interested in learning more.

Hi AJ - Here is Neils post from a year and a half ago introducing HUBS to the board (much abridged by me) I’m sure he wouldn’t mind me reposting it.

June 2015 - Neil’s Evaluation
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, they don’t answer their phones if they don’t recognize the number of the caller, unsolicited marketing emails go to their spam folders, ad-blockers block your online ads, etc). Inbound marketing is about building up an online presence that will bring in leads over time.

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 Halligan put it:

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. They say clients averaged a 5.7x increased number of leads 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. They were awarded 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: 98% approve of the CEO, and 94% would recommend the company to a friend. So its employees are pretty happy too.

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 is worth mentioning that the 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 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.

Ratings - This is a tricky one because the company isn’t yet profitable and is still burning cash, but at the same time it seems as if the capital is largely being invested in customers that will have much larger paybacks over their lifetimes (and as the company improves, we may even see those paybacks increase over time). So is that capital “lost” or merely invested and likely to provide great returns over time? I think that’s what an investor would need to decide. For myself, I like what I’m seeing, but I think I’d want to see more and have a bit more certainty.

And here’s okapimoon’s take:

June 2015 – Okapimoon’s Take
A totally disruptive company whose entire mission is to change the face of marketing to adapt to the new way people connect, research, buy, sell, advertise to update and match marketing to fit that new world so swiftly developing in every area of business. Interesting!

Another connection that came up for me regarding the different tickers you’ve tossed out that I found interesting. Michael Simon, the CEO of LOGM, is on the board of directors of HUBS.

HUBS has recently IPO’ed and is pouring money into developing the business quickly. Not quite sure how to evaluate a company that is growing like wildfire but has negative EPS because the growing revenue is being poured into future growth.

Some minuses.
Return on Assets: -38%
Return on Equity: -256%
Operating Profit Margin: -39%
Net Profit Margin: -38%

A few positives:
Gross Profit Margin: 69%
Sales Growth - 5 year: 77%
Cash per share: $4.20
Tangible Book Value/share: $3.80
Enterprise Value: $1.55B

I’m also guessing this one wouldn’t pass the “Saul Test” (though at least in terms of revenue, that is growing beyond 20%).

Still, I’m not really sure how to evaluate a company in this situation. But, we’ll get to that later. First, a few more facts and figures.

Brian Halligan (CEO & Founder)
Prior to HubSpot, he was a venture partner at Longworth Ventures and a VP of sales at Groove Networks, which was later acquired by Microsoft. Brian was named Ernst and Young’s Entrepreneur of the Year in 2011 and one of Glassdoor’s 25 Highest Rated CEOs in 2014.

Dharmesh Shah (CTO [Chief Technology Officer] & Founder)
Prior to HubSpot, he was founder and CEO of Pyramid Digital, a software company which was acquired in 2005. In 2013, he published HubSpot’s Culture Code, which has garnered over 1 million views. He is an active member of the Boston area entrepreneurial community, an angel investor in over 40 startups, and a frequent speaker on the topic of startups and inbound marketing. He has a BS in Computer Science, and an MS in the Management of Technology from MIT.

JD Sherman (COO)
Before HubSpot, he spent 6 years as Akamai’s CFO, where he was responsible for finance, strategic planning, and corporate development. During his tenure, Akamai grew from just over $200 million to $1.2 billion in revenue with over 2,000 employees globally, and was added to the S&P500 index.

Prior to his time at Akamai, he served as the CFO of IBM’s $21 billion Systems and Technology Group. During his 15-year career at IBM, he held a number of senior executive positions in Finance.

John Kinzer (CFO)
He joined HubSpot as CFO in Nov 2013, and brings 24 years of financial and management experience in technology to the company. Before HubSpot, he was CFO for Blackboard, the leading SaaS education company. At Blackboard, he played a key role in taking Blackboard public in 2004 and later, in reaching over $500M in revenue before being acquired. He graduated from Virginia Tech.

94% would recommend to a friend (out of 189 employee reviews)
98% approve of CEO (out of 150 ratings)

(Higher than Motley Fool which scores 4.5 stars and 86% would recommend to a friend and 95% approve of CEO.)

BEGINNINGS - Brian Halligan and Dharmesh Shah met at MIT. They founded Hubspot together in 2006. At the time, Halligan was working for a Venture Capital company and was having a hard time bringing internet attention to the companies he was interested in. Shah (if I’m remembering the story correctly) had a tech blog at the time which, without much effort was bringing in tons of attention. Halligan asked him if he could design a program or in someway use some of the whatever it was that was allowing him to create buzz for his blog to bring attention to Halligan’s companies. One thing led to another and the two eventually came up with the idea to start a business that would be based on creating value to customers that would naturally bring them to a company rather than companies needing to hit the pavement (so to speak) to go out and find customers and drag them back. Not only was the idea to be able to attract customers, but in creating a company that would do so, they could also give small companies the leverage to compete against the bigger companies whom they could never outspend. “We want to help the tiny companies grow and take down giants."

Next, in building their company, they wanted to recruit only the best people. How do you recruit amazing people? A few more thoughts from Dharmesh Shah:

“Awesome people don’t like average goals.” [If you want to attract awesome people you have to have awesome goals, which leads to next point.]

“Remarkable results rarely come from avoiding risk.”
“You must try new things.”
“Growth is a team sport.”

They began the company in 2006 and IPO’ed it late in 2014. Shah owns 6.3% of the company stock, Halligan 3.4%)

IPO description [Nasdaq, 10.9.2014]

We provide a cloud-based marketing and sales software platform that enables businesses to deliver an inbound experience. An inbound marketing and sales experience attracts, engages and delights customers by being more relevant, more helpful, more personalized and less interruptive than traditional marketing and sales tactics.

Our software platform features integrated applications to help businesses attract visitors to their websites, convert visitors into leads, close leads into customers and delight customers, so that they become rooters of those businesses. These integrated applications include social media, search engine optimization, blogging, website content management, marketing automation, email, CRM, analytics and reporting…

Some Figures from Company Presentation

2009: 7
2010: 15
2011: 28
2012: 52
2013: 78
2014: 116
2015: Est 167

2006: 3
2007: 48
2008: 317
2009: 1150
2010: 3855
2011: 5783
2012: 8159
2013: 10,111
as of Q2 2014: 11,624

(92% of revenue is earned on a subscription basis)

More Numbers

Annual Adj EPS
2014: Loss of 2.77
2015: Loss of 0.97

Quarterly Non-Gaap EPS
2014 Q3: Loss of 1.62
2014 Q4: Loss of 0.25
2015 Q1: Loss of 0.18
2015 Q2: Est: Loss of 0.21

Final Thoughts
Hubspot customer satisfaction appears to be high. Effectiveness of their platform appears to be high. Inbound Marketing appears to be a transformative industry and has a huge growth trajectory with marketing theses moving from cold calls, mailers, email campaigns, pounding the pavement in search of leads, and all old school methods to providing content and solutions, connecting via social media, linking via contacts, etc. in much the way advertising itself is shift from off to online. Hubspot has an effective, and dedicated founder staff who love what they do and are excited both to share it and to help others use their program to grow their own businesses. There are approximately 3 million mid-market businesses in North America and Europe and in terms of paying customers, the company has barely scratched the surface. There is competition in the field, Hubspot is not the only one, I believe their product may be like the Tesla of the Inbound Marketing industry. And if not the best, at least up in the top range. But, as one review concludes: “The main risk to the thesis is currently the valuation, since the market is counting on the company to continue to grow at a rapid pace and a top line growth deceleration might lead to a contracting P/S ration and result in a correction of at least 20%-30%.”

I think HUBS is a very exciting company right on the cusp of what will continue to be a tidal wave of change in marketing. I think the founders and owners are deeply invested in creating a product that creates value for the company, its shareholders, and especially, its customers. They are continuing to innovate and I anticipate the company continuing to grow and for the negative earnings to catch up as the company grows. I think investing at the current time provides both a great deal of potential and as well as risk and personally would only feel comfortable with a small speculative investment at this time. However, I think this is a company that could become a behemoth in the industry and I would keep my eye on it.

Although I really was not sure how to evaluate a company at this stage of its growth and with the kind of negative/positive financials it shows (besides saying, “hey, no profit, no way”), still, I’d give it a risky 4 right now. - okapimoon

Hope that was helpful,



Also those were both from June 2015. June 2015 starts about post 9000 on this board and I bet if you skim through, you can pick up the threads.

Can anyone point me to other pertinent posts about HUBS on this board?

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