HubSpot (HUBS)

Sales and marketing software maker HubSpot (NYSE:HUBS) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 15.7% year on year to $714.1 million. Guidance for next quarter’s revenue was better than expected at $739 million at the midpoint, 2% above analysts’ estimates. Its non-GAAP profit of $1.78 per share was 1% above analysts’ consensus estimates.

Company Overview

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.

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.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, HubSpot’s sales grew at a solid 24.4% compounded annual growth rate over the last three years. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.

This quarter, HubSpot reported year-on-year revenue growth of 15.7%, and its $714.1 million of revenue exceeded Wall Street’s estimates by 2%. Company management is currently guiding for a 16% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.8% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is noteworthy and suggests the market is baking in success for its products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

HubSpot’s billings punched in at $753.6 million in Q1, and over the last four quarters, its growth was impressive as it averaged 19.2% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

HubSpot reported 258,258 customers at the end of the quarter, a sequential increase of 10,319. That’s roughly in line with what we’ve observed over the last year, confirming that the company is maintaining its sales momentum.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

HubSpot is efficient at acquiring new customers, and its CAC payback period checked in at 39.3 months this quarter. The company’s fast sales cycles stem from its brand reputation and self-serve model, where it can onboard many small customers without much oversight. These dynamics give HubSpot more resources to improve its software so it can potentially move up market and serve enterprise clients, which can provide a second leg of growth.

Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

HubSpot’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 85.2% gross margin over the last year. That means HubSpot only paid its providers $14.83 for every $100 in revenue.

HubSpot’s expensive cost structure has contributed to an average operating margin of negative 2.6% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last year, HubSpot’s expanding sales gave it operating leverage as its margin rose by 5.3 percentage points. Still, it will take much more for the company to reach long-term profitability.

This quarter, HubSpot generated a negative 3.8% operating margin.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

HubSpot has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 18.3% over the last year, quite impressive for a software business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

HubSpot’s free cash flow clocked in at $122.3 million in Q1, equivalent to a 17.1% margin. This cash profitability was in line with the comparable period last year but below its one-year average. We wouldn’t read too much into it because investment needs can be seasonal, leading to short-term swings. Long-term trends trump temporary fluctuations.

Over the next year, analysts’ consensus estimates show they’re expecting HubSpot’s free cash flow margin of 18.3% for the last 12 months to remain the same.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

HubSpot is a well-capitalized company with $2.04 billion of cash and $655.1 million of debt on its balance sheet. This $1.39 billion net cash position is 4.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing HubSpot beat analysts’ billings expectations this quarter. We were also glad its revenue guidance for next quarter exceeded Wall Street’s estimates. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 5.4% to $623.95 immediately after reporting.

Updated: May 19, 2025 at 10:03 PM EDT

Are you wondering whether to buy HubSpot or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

In our opinion, HubSpot is a solid company. To kick things off, its revenue growth was solid over the last three years. On top of that, HubSpot’s admirable gross margin indicates excellent unit economics, and its ARR growth has been splendid, showing it’s securing more long-term contracts and becoming a more predictable business.

HubSpot’s price-to-sales ratio based on the next 12 months is 10.7x. Looking at the software landscape right now, HubSpot trades at a pretty interesting price. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $753.35 on the company (compared to the current share price of $654.79), implying they see 15.1% upside in buying HubSpot in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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