HUBS

Investment Analysis Clubs Saul’s Investing Discussions
1

So lets look at some numbers for Hubs.


Revenue

Q115.   Q215.   Q315.   Q415.   Q116.   Q216.   Q316.   Q416.   Q117.   Q217
38.2.   42.9.   47.7.   53.1.   59.0.   65.0.   70.6.   76.4.   82.3.   89.1
                                54.5%.  51.5%.  48%.    43.9%.  39.5%.  37.1%

Ok so Revenue has been climbing every quarter but the growth has been slowing down. From Q116 it went from 54.5% growth to 37.1% growth in Q217. This seems a little concerning. They are expecting third quarter Revenue at a midpoint of 93.3 million. This puts growth at 32% another quarter down.


AEPS

Q115.   Q215.   Q315.   Q415.   Q116.   Q216.   Q316.   Q416.   Q117.   Q217.   
-.18.   -.17.   -.40.   -.30.   -.11.   -.07.   -.30.   -.39.   .03.   .07

Well there Adjusted earnings are going in the right direction. But it took them awhile to get profitable on a non gaap basis. The last 2 quarters they have become profitable on an adjusted basis. Next quarter though they are guiding for a .09 cent loss at the midpoint.

One good thing about the company though is that they are Debt Free and have almost 500 million in cash but lets look at their FCF


FCF

Q115.   Q215.   Q315    Q415.   Q116.   Q216.   Q316.   Q416.   Q117.   Q217
-1.8.   1.4.    -4.8.   -3.6.   -3.5.   4.0.    3.2.    -.2.    13.3.   3.5

So the past two quarters they have been FCF positive and with a slight blip in Q416 they have been FCF positive since Q216. They are guiding for FCF for the year to be between 15 and 16 million dollars. The third quarter they are guiding flat and the fourth quarter is going to be up slightly.

So my question to the board is we have a company that Revenues are declining. AEPS is being guided to a loss next quarter and the only bright spot is that they are FCF positive. Why does anyone want to own this company?

Andy
6 Likes
2

yes that perfect grower is hard to find.
And even if you do, everybody else has found it too.

I own some HUBS but don’t that declining revenue growth rate. But I would be satisfied with a 30 +% growth rate if it persists. A big IF.

1 Like
3

30% would be great but a growth stock that is not profitable growing at 20% does not give me much hope.

Andy

1 Like
4

So my question to the board is we have a company that Revenues are declining.

Revenues aren’t declining, in fact they’ve gone up every quarter, revenue growth is declining.

2 Likes
5

Sorry Foodles I misspoke. So revenue growth is slowing. Why would you own this company?

Andy

1 Like
6

Sorry Foodles I misspoke. So revenue growth is slowing. Why would you own this company?

Andy

Yeah, Andy, I knew what you wanted to say, I just wanted to correct it for any newer readers that didn’t and might have taken action based on the incorrect wording. And I didn’t say I would own it, and as a matter of fact, I don’t own HUBS currently (never have yet).

But, revenue growth slowing isn’t terrible, it happens to every high flier eventually as the numbers get larger and have harder YOY comps, that same level of growth can’t be sustained, we all know that, we’ve seen it happen at many companies. Now if the growth plateaus at a high level (20-30% growth), I’d say that’s still a company worth investigating and holding if you purchase at the right price and for the right timeline. You can make a lot of money for a long time on companies growing at consistent growth rates without any growth acceleration.

1 Like
7

even 20 % annual growth compounded doubles in only 3 1/2 years. Compare that to the double time for indices like SP 500.

3 Likes
8

even 20 % annual growth compounded doubles in only 3 1/2 years. Compare that to the double time for indices like SP 500.

My point exactly, Mauser, thanks for putting it more succinctly than I did.

9

Yeah, Andy, I knew what you wanted to say, I just wanted to correct it for any newer readers that didn’t and might have taken action based on the incorrect wording. And I didn’t say I would own it, and as a matter of fact, I don’t own HUBS currently (never have yet).

I appreciate it foodles. Sometimes when I am typing things up I do not check myself and send it out. Its good to have someone correct any misunderstandings.

But, revenue growth slowing isn’t terrible, it happens to every high flier eventually as the numbers get larger and have harder YOY comps, that same level of growth can’t be sustained, we all know that, we’ve seen it happen at many companies. Now if the growth plateaus at a high level (20-30% growth), I’d say that’s still a company worth investigating and holding if you purchase at the right price and for the right timeline. You can make a lot of money for a long time on companies growing at consistent growth rates without any growth acceleration.

I would say for this board and the way we look at investments. Slowing growth is terrible. Especially for a company that is not profitable. This board is all about accelerating growth. I am not sure if you could make money off this stock with a growth rate of 20%. They will have a negative earnings next quarter and they are changing their business model to a freemium model. One more thing to worry about is a company that has High Revenue growth, with no FCF and No Earnings is a much more riskier investment than a company that is FCF positive, and a company that is FCF positive and positive earnings is much less riskier still. Generally speaking.

Andy

1 Like
10

even 20 % annual growth compounded doubles in only 3 1/2 years. Compare that to the double time for indices like SP 500.

I never thought about it that way Mauser. Thanks.

Andy

11

Slowing growth is terrible. Especially for a company that is not profitable. This board is all about accelerating growth. I am not sure if you could make money off this stock with a growth rate of 20%. They will have a negative earnings next quarter and they are changing their business model to a freemium model. One more thing to worry about is a company that has High Revenue growth, with no FCF and No Earnings is a much more riskier investment than a company that is FCF positive, and a company that is FCF positive and positive earnings is much less riskier still.

Andy, I don’t know where you are getting this stuff about Hubs. Did you mistake it for another company? Or perhaps did you not read the conference call? Here’s stuff direct from their guidance or the Full Year:

Guidance for Full Year 2017:

Adjusted operating income - $2.0 million, up from previously guided loss of ($4.0) million.
Adjusted EPS of 3 to 7 cents, up from our previously guided loss of 4 to 10 cents.

So this is a company that previously guided to a LOSS of 7 cents at the midpoint, and just raised their full year guidance to a PROFIT of 5 cents at the midpoint, raising annual guidance by 12 cents in one quarter, and surely they expect to beat their new guidance as well.

Here are some more gems:

Grew total (paying) customers to 34,326, up over 40%.

Deferred Revenue came in at $111.3 million, up 44% year-over-year.
Calculated Billings defined as revenue plus the change in deferred revenue came in at $95 million, up 39%.
Billings growth exceeded our expectations.

Let’s take a look at our margins. Gross margin was 80%, up 2.5%, while subscription revenue gross margin was 85%, up 1.5%.

Operating margin was up nearly 7%, to positive 3% margin. Note that that’s operating margins up 7% in one year!

International performance was strong with revenue up 62%, at 32% of total revenue.

With that, let’s dive into guidance for the third quarter.

We now expect full year free cash flow to be between $15 million to $16 million, up from our previous expectation of $13 million to $14 million.

Keep in mind that for the third quarter, we expect our INBOUND event to drive a 4- to 5-point headwind to our operating margins, and we anticipate third quarter free cash flow to be breakeven and the fourth quarter to be positive. As I told you previously, that’s why third quarter estimates are artificially depressed.

So not only operating cash flow will be positive but free cash flow as well!

Here’s what you said: and a company that is FCF positive and positive earnings is much less riskier still. So Hubs qualifies on both criteria. And they’ve been raising their estimates like mad, every quarter.

You might want to take another look,

Saul

9 Likes
12

Andy,

As I read subsequent posts, I saw that you were still talking about Hubs having negative Free Cash Flow!!! You actually DIDN’T read the conference call and the guidance to positive $15.5 million of Free Cash Flow!

You just sold out on “analysts estimates” of revenue growth falling to 20% next year. Do you really believe that? I think I also remember reading that “analysts” estimated Shopify’s growth THIS year at 55% to 60%. Did you believe that???

I feel that making a decision about selling out of a stock without even reading the conference call and guidance is working with one hand tied behind your back. But that’s just my opinion.

Saul

5 Likes
13

Saul,

Andy, I don’t know where you are getting this stuff about Hubs. Did you mistake it for another company? Or perhaps did you not read the conference call? Here’s stuff direct from their guidance or the Full Year:

Guidance for Full Year 2017:

Adjusted operating income - $2.0 million, up from previously guided loss of ($4.0) million.
Adjusted EPS of 3 to 7 cents, up from our previously guided loss of 4 to 10 cents.

First Saul you are talking full year guidance and I was talking 3rd quarter guidance and yes I did read the conference call, did you?

With that, let’s dive into guidance for the third quarter of 2017. Total revenue is expected to be in the range of $92.8 million to $93.8 million. Non-GAAP operating income is expected to be between a loss of $4.5 million to $3.5 million.

Non-GAAP basic and diluted net income per share is expected to be between a loss of $0.10 and $0.08. This assumes approximately 37.1 million basic shares outstanding. And for the full year of 2017, total revenue is expected to be in the range of $362.8 million to $364.8 million.

Non-GAAP basic and diluted net income per share is expected to be between a loss of $0.10 and $0.08. This assumes approximately 37.1 million basic shares outstanding. And for the full year of 2017, total revenue is expected to be in the range of $362.8 million to $364.8 million.

Grew total (paying) customers to 34,326, up over 40%.

Now I know the Conference call didn’t say this. I think you are putting your own words into the conference call. What they actually said was this.

HubSpot ended the quarter with 34,326 total customers, was up over 40% year-over-year, and total average subscription revenue per customer came in at $10,228.

Now the average subscription revenue was down because they had Freemium customers in there as well which drew the average down. At least that is the way I understood it.

We now expect full year free cash flow to be between $15 million to $16 million, up from our previous expectation of $13 million to $14 million.

You are talking past me again. I wasn’t talking about full year but next quarter. Here is what I was quoting.

As you adjust your models for 2017, keep in mind the following: for the third quarter, we expect our INBOUND event to drive a 4- to 5-point headwind to our operating margins. As you think about the quarterly linearity of cash flow, we anticipate third quarter free cash flow to be breakeven and the fourth quarter to be positive.

Saul, instead of making accusations and trying to infer that I was making something up you could just have a conversation about a stock. I think you might be a little to emotionally involved with this company.

I hope you and everyone else that is invested in HUBS does well, its just not a company I want in my portfolio. As someone once told me. It doesn’t matter about the company you sold but the company you bought.

Have a nice day.
Andy

5 Likes
14

Saul,

As I read subsequent posts, I saw that you were still talking about Hubs having negative Free Cash Flow!!! You actually DIDN’T read the conference call and the guidance to positive $15.5 million of Free Cash Flow!

Really could you please show me the post where I said they were negative FREE CASH FLOW please.

So the past two quarters they have been FCF positive and with a slight blip in Q416 they have been FCF positive since Q216. They are guiding for FCF for the year to be between 15 and 16 million dollars. The third quarter they are guiding flat and the fourth quarter is going to be up slightly.

Not once in my posts did I say that HUBS was FCF negative. I did say that they were negative Q416 which is correct and I did say they were guiding flat next quarter and could possibly go negative. But nowhere did I say they were FCF negative. Did you read my posts Saul or did you just glance over them and read what you wanted to see?

I feel that making a decision about selling out of a stock without even reading the conference call and guidance is working with one hand tied behind your back. But that’s just my opinion.

Saul, I am sorry I brought this up to you. Obviously you feel you must attack me because I have a different opinion then you. I wish that you didn’t feel the need to make up stories to bolster your argument.

Andy

5 Likes
15

Sorry Andy, In reading over what I wrote I did come across very aggressive and accusative, which was very inappropriate. I should know better, and I really want to apologize.
Saul

12 Likes
16

Andy, You did, however, seem to be continually referring to Hubspot as a company with no free cash flow and a company which is unprofitable, both of which are completely incorrect (talking about the whole year, as people usually do, not just the next atypical quarter), as Hubspot has noisily just broken solidly into positive earnings and and has been free cash flow positive for some quarters now.

You seemed to be saying in post after post that you didn’t want to be in a non-profitable, and free cash flow negative company, that had a near future rate of revenue growth of 20%. Perhaps I misinterpreted what you were saying but that’s what it sounded like to me (and apparently to others). I believe that was why I reacted the way I did (as all three assumptions are apparently incorrect). That doesn’t excuse the tone of my response (I really do know better than to write in a tone like that), but perhaps helps explain why it happened.
Saul

3 Likes
17

Thats ok Saul. I hold a large part of the blame. Some of my research was a little sloppy as Chris points out. Instead of saying 20% I should have been more accurate. Although I still hold with my viewpoint and reasoning.

Thanks and please accept my apology also,
Andy

7 Likes