New America: $HUBS

IBD has a nice article out on HUBS this weekend.…

HubSpot is an 11-year-old maker of sales and marketing software based in Cambridge, Mass., and it sells to small- and midsize businesses. Its own pitch is that potential customers — aka those sociable humans — find businesses through digital channels like blogs, internet search engines and social media. HubSpot’s expertise lies in attracting people to websites and optimizing content so that visitors are converted into paying customers.

Its mantra: Help customers create more personalized interactions with their prospective buyers to close the deal. The strategy has helped HubSpot see its revenue shoot up 38% to $171 million in the first six months of 2017. Shares are up 52% this year.


Analysts polled by Thomson Reuters expect 2018 revenue growth to slow to 25% from 34% this year. HubSpot could beat those earnings estimates if new initiatives gain traction, says Derrick Wood, an analyst at Cowen & Co.

“Their rate of growth has come down. Marketing tech in general is a tough market to scale. It’s fragmented with lots of small vendors. So to come out as a single winner and take a lot of market share has been challenging,” said Wood, who has a neutral rating on the stock.

The company has focused on the midmarket as opposed to competing head-on for large corporate accounts vs. the likes of Oracle (ORCL), (CRM), SAP and Adobe Systems (ADBE). That way HubSpot has avoided the cost of investing in its own sales staff to chase down and close deals, says Wood.

HubSpot’s customers mostly engage in business-to-business marketing. They buy online subscriptions to software that ranges from $2,500 to $30,000 annually. The average marketing customer spends about $13,000 a year.

Still, there’s more to HubSpot’s marketing than social media engagement. HubSpot has built up sales channels, such as website design and marketing agencies, that point people toward its products. About 40% of revenue comes from customer-referral channels, says Wood.

The company also provides help in integrating its software with’s bigger platform. And, HubSpot’s tools work with e-commerce payment platforms such as Shopify (SHOP)

HubSpot has more than 34,300 customers, up 40% from a year ago, with roughly 27,000 of them buying marketing tools. Average revenue per customer has been falling, however, due to the lower-priced offers.

Nate Cunningham, a Guggenheim Securities analyst, says HubSpot has a “greenfield” opportunity to target small companies that never bought marketing software. He says HubSpot needs to improve operating margins as it adds customers in new ways.

HubSpot had over 5,000 “Growth Stack” customers as of June 30, up from 3,000 at the start of the year. These high-spending customers buy more sales, CRM and marketing software tools. And, they’re more likely to renew subscriptions annually as opposed to leaving.