Something to consider: Hubspot (Nasdaq:HUBS)
Overview: Hubspot started in 2006 as a kind of “Salesforce Light” for small companies. They went public in 2014 and have been evolving into an overall SaaS “marketing automation” platform for small and medium size companies. Their philosophy is that a company website is a company’s best marketing tool. Hubspot sells a variety of modules to enable conversion of web traffic into sales, tools to analyze web traffic to see what leads to “conversions”, SEO (search engine optimization) tools, and tools to identify which content is resonating with customers.
What does this mean? When you go on a website and there is a “chat” feature, when you sign up to “learn more” about a product and receive an automated series of communications, when you are led down a process to the “buy now” button–that is marketing automation. Hubspot tries to bring all of these different elements together to create higher sales growth for their clients.
Side note: I’ve looked on and off at how my company could potentially use something like this for a couple years. A couple years ago, my impression was Hubspot was one of several “CRM Light” companies. Now, my impression is that they won the battle against the other small CRM players, but have also transformed into an integrated suite of software.
The Numbers:
Revenue growth has been accelerating:
Quarter Revenue YoY Growth%
Q2 2020 $203M 25%
Q3 2020 $230M 32%
Q4 2020 $250M 35%
Q1 2021 $280M 41%
Q2 2021 $310M 53%
Current estimates are for Q3 revenue to be $330M, which would be 43% YoY growth.
Total customers have grown annually at 40% from 86672 to 121048 from Q2 2020 to Q2 2021
Average subscription revenue per customer is basically flat at $10,000/yr/customer
Valuation:
*Market cap is currently $33 billion with sales just passing $1 billion annually.
*EV/Sales ratio is currently 30, so like many other companies here it is already richly valued
*Unlike many other companies, HUBS should start turning profits this year and next and gross margins have been steady at 80%+
Competition:
HUBS seems to have carved out a unique niche in the web marketing space. As noted above, they seem to have beaten out the “CRM light” competition for small companies. Yet, what they do is significantly different from big CRM companies like Salesforce.
Many independent marketing companies offer some of the same marketing services, but not software based. In my recent search, it was much more common to find marketing companies selling themselves as “Hubspot integrators”. I didn’t find anyone offering to integrate any other software suite into a web marketing campaign.
The downside:
Looking at Hubspot marketing material, they make it look like it is “seamless” to integrate Hubspot into a small company sales/marketing process. The reality is similar to Salesforce–it takes a lot of work from the salesforce to enter information into a new platform. Furthermore, while annual subscription revenue to Hubspot is $10,000, marketing companies charge about $150,000 for the full implementation.
In short, implementing Hubspot is a big commitment which takes significant resources for most small companies. This probably puts some kind of limit on the growth rate.
That said, it also means that once customers are signed up on the platform, like other SaaS companies, the repeat revenue will likely continue for a very long time.
My conclusion:
The total addressable market for Hubspot is millions of small and medium sized companies, so they can keep growing at a high rate for a long time. Salesforce has a market cap of $270B and I don’t think that is out of the realm of possibility for Hubspot.
That said, the growth rate isn’t as impressive as some of the other companies this board follows, and the valuation is nearly as high as many other companies on this board.
So, for now, I’m watching this one. Your comments are welcome.