HubSpot's (NYSE:HUBS) Q4: Beats On Revenue, Stock Soars

Full Report / March 09, 2024

Sales and marketing software maker HubSpot (NYSE:HUBS) reported results ahead of analysts' expectations in Q4 FY2023, with revenue up 23.9% year on year to $581.9 million. Guidance for next quarter's revenue was also better than expected at $597 million at the midpoint, 1.6% above analysts' estimates. It made a non-GAAP profit of $1.76 per share, improving from its profit of $1.11 per share in the same quarter last year.

HubSpot (HUBS) Q4 FY2023 Highlights:

  • Revenue: $581.9 million vs analyst estimates of $558.8 million (4.1% beat)
  • EPS (non-GAAP): $1.76 vs analyst estimates of $1.55 (13.8% beat)
  • Revenue Guidance for Q1 2024 is $597 million at the midpoint, above analyst estimates of $587.6 million
  • Management's revenue guidance for the upcoming financial year 2024 is $2.56 billion at the midpoint, beating analyst estimates by 0.9% and implying 17.7% growth (vs 25.4% in FY2023)
  • Free Cash Flow of $78.54 million, up 29.8% from the previous quarter
  • Customers: 205,091, up from 194,098 in the previous quarter
  • Gross Margin (GAAP): 84.8%, up from 82.9% in the same quarter last year
  • Market Capitalization: $30.4 billion

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

Sales Software

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 integrates 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 strong over the last two years, growing from $369.3 million in Q4 FY2021 to $581.9 million this quarter.

HubSpot Total Revenue

This quarter, HubSpot's quarterly revenue was once again up a very solid 23.9% year on year. However, its growth did slow down a little compared to last quarter as the company increased revenue by $24.36 million in Q4 compared to $28.42 million in Q3 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that HubSpot is expecting revenue to grow 19% year on year to $597 million, slowing down from the 26.8% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $2.56 billion at the midpoint, growing 17.7% year on year compared to the 25.4% increase in FY2023.

Customer Growth

HubSpot reported 205,091 customers at the end of the quarter, an increase of 10,993 from the previous quarter. That's a fair bit better customer growth than last quarter and quite a bit above the typical growth we've seen in past quarters, demonstrating that the business has strong sales momentum. We've no doubt shareholders will take this as an indication that HubSpot's go-to-market strategy is working very well.

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 84.8% in Q4.

HubSpot Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.85 left to spend on developing new products, sales and marketing, and general administrative overhead. HubSpot's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that HubSpot is controlling its costs and not under pressure from its competitors to lower prices.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. HubSpot's free cash flow came in at $78.54 million in Q4, up 10.7% year on year.

HubSpot Free Cash Flow

HubSpot has generated $273.4 million in free cash flow over the last 12 months, a decent 12.7% of revenue. This FCF margin stems from its asset-lite business model and gives it a decent amount of cash to reinvest in its business.

Key Takeaways from HubSpot's Q4 Results

HubSpot delivered a very solid beat & raise quarter, one of the likes tech stocks used to deliver back in good old 2021. While its revenue guidance for next year suggests a slowdown in demand, revenue is still growing fast and its customer acquisition strategy is working well (as it should for a company like HubSpot). Overall, this quarter's results seemed positive and shareholders should feel optimistic. The stock is up 5.3% after reporting and currently trades at $663 per share.

Is Now The Time?

When considering an investment in HubSpot, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

There are several reasons why we think HubSpot is a great business. While we'd expect growth rates to moderate from here, its revenue growth over the last two years has been solid. Additionally, its impressive gross margins indicate excellent business economics and its efficient customer acquisition is better than many similar companies.

HubSpot's price-to-sales ratio based on the next 12 months of 12.5x indicates that the market is definitely optimistic about its growth prospects. Looking at the tech landscape today, HubSpot's qualities stand out, and we like the stock at this price.

Wall Street analysts covering the company had a one-year price target of $623.48 per share right before these results (compared to the current share price of $663).

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