HubSpot (NYSE:HUBS) Q4: Beats On Revenue, Stock Jumps 11.9%

Full Report / February 16, 2023
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Sales and marketing software maker HubSpot (NYSE:HUBS) announced better-than-expected results in the Q4 FY2022 quarter, with revenue up 27.2% year on year to $469.7 million. Guidance for next quarter's revenue was $474 million at the midpoint, which is 1.07% above the analyst consensus. HubSpot made a GAAP loss of $15.6 million, improving on its loss of $16.4 million, in the same quarter last year.

HubSpot (HUBS) Q4 FY2022 Highlights:

  • Revenue: $469.7 million vs analyst estimates of $446 million (5.3% beat)
  • EPS (non-GAAP): $1.11 vs analyst estimates of $0.82 (34.6% beat)
  • Revenue guidance for Q1 2023 is $474 million at the midpoint, above analyst estimates of $469 million
  • Management's revenue guidance for upcoming financial year 2023 is $2.06 billion at the midpoint, in line with analyst expectations and predicting 18.7% growth (vs 33.6% in FY2022)
  • Free cash flow of $70.9 million, up 99.6% from previous quarter
  • Customers: 167,386, up from 158,905 in previous quarter
  • Gross Margin (GAAP): 82.9%, up from 80.6% same quarter last year

Started in 2006 by two MIT grad students, HubSpot (NYSE:HUBS) is a software as a service platform that helps small and medium-size businesses sell, market themselves, and get found on the internet.

The platform integrates with a company’s website and database and provides easy-to-use tools to capture visitor’s information, automate email marketing, and create content marketing and sales campaigns. Companies using HubSpot are able to analyze their customers' behaviour and optimize the marketing based on who the customers are and what they need.

Hubspot pioneered the concept of inbound marketing, a strategy where companies attract customers by creating interesting content on topics their customers care about rather than buying ads. Practicing what they preach the company is attracting customers mainly by creating free online content and tools. That seems to be a fit for their business model because with the large number of smaller customers it would be too expensive to hire a classic enterprise sales team to sell to them.

For example, instead of cold calling potential customers or spending money on paid advertising, a typical mom-and-pop coffee shop could set up an online website and use tools provided by HubSpot to make their brand more visible on search sites such as Google. Google displays the coffee shop as part of the search results whenever people search for a good place to buy coffee, thereby providing more visibility which could eventually lead to sales.

Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality, coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrate data analytics with sales and marketing functions.

Being the pioneer in the inbound marketing niche has helped HubSpot manage competition from companies such as Zoho and Salesforce (NYSE:CRM).

Sales Growth

As you can see below, HubSpot's revenue growth has been impressive over the last two years, growing from quarterly revenue of $252.1 million in Q4 FY2020, to $469.7 million.

HubSpot Total Revenue

This quarter, HubSpot's quarterly revenue was once again up a very solid 27.2% year on year. On top of that, revenue increased $25.7 million quarter on quarter, a solid improvement on the $22.2 million increase in Q3 2022. Happily, that's a slight acceleration of growth.

Guidance for the next quarter indicates HubSpot is expecting revenue to grow 19.8% year on year to $474 million, slowing down from the 40.6% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $2.06 billion at the midpoint, growing 18.7% compared to 33.1% increase in FY2022.

Customer Growth

You can see below that HubSpot reported 167,386 customers at the end of the quarter, an increase of 8,481 on last quarter. That's in line with the customer growth we have seen over the last couple of quarters, suggesting that the company can maintain its current sales momentum.

HubSpot Customers


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. HubSpot's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 82.9% in Q4.

HubSpot Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a great gross margin, that allows companies like HubSpot to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. HubSpot's free cash flow came in at $70.9 million in Q4, down 9.45% year on year.

HubSpot Free Cash Flow

HubSpot has generated $191.4 million in free cash flow over the last twelve months, a solid 11.1% of revenues. This strong FCF margin is a result of HubSpot asset lite business model and provides it plenty of cash to invest in the business.

Key Takeaways from HubSpot's Q4 Results

Sporting a market capitalization of $17.9 billion, more than $1.41 billion in cash and with positive free cash flow over the last twelve months, we're confident that HubSpot has the resources it needs to pursue a high growth business strategy.

We liked to see that HubSpot beat analysts’ revenue expectations pretty strongly this quarter and guide ahead for revenue next quarter. We were also glad to see the improvement in already robust gross margins as well as continued strong free cash flow generation. Zooming out, we think this was positive quarter from HubSpot. The company is up 11.9% on the results and currently trades at $406 per share.

Is Now The Time?

When considering HubSpot, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think HubSpot is a solid business. We would expect growth rates to moderate from here, but its revenue growth has been impressive, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its strong free cash flow generation gives it re-investment options.

The market is certainly expecting long term growth from HubSpot given its price to sales ratio based on the next twelve months is 8.6x. There are definitely things to like about HubSpot and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

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