HubSpot: Runway to Growth

09/08/2016 7:00 am EST

Focus: STOCKS

Rob DeFrancesco

Founder, Tech-Stock Prospector

The latest addition to our small cap portfolio is a provider of inbound marketing solutions aimed at the mid-market, notes Rob DeFrancesco, editor of Tech-Stock Prospector.

CRM — customer relationship management — is the hidden gem within HubSpot (HUBS). It’s easy to learn and use, enabling the real-time monitoring and management of deals in the pipeline.

This product is free no matter the size of the sales team or customer contact base. CRM is then an excellent cross-selling tool for HubSpot, acting as a major launching point for the new Sales product.

Fully 20% of new customers this year for HubSpot’s Marketing solution used the CRM solution before signing up for the core offering. "Sales" has exceeded a $10-million annual run rate two quarters earlier than management had expected.

There is plenty of growth runway ahead for Sales because the product isn’t even expected to be fully available to the entire partner channel (3,300+ strong) until next year.

Meanwhile, HubSpot reported Q2 results above expectations and issuing upside guidance. The stock is nearing the all-time high of $60.11 reached in December.

HubSpot’s Q2 revenue expanded 51% to $65 million, beating the consensus estimate of $61.6 million. Subscription revenue of $60.9 million rose 55%.

The firm ended the quarter with 20,444 customers (+29% year-over-yeary), adding 1,122 since the end of March.

Average subscription revenue per customer of $11,978 rose 18% from the year-ago level. Revenue retention was in the high 90% range.

The company once again raised its 2016 top-line guidance; the new guidance midrange of $264 million represents growth of 45.1%.

Following the earnings report, Rosenblatt Securities boosted its HubSpot price target to $67 from $61 based on the company’s continued solid execution, strong top-line growth and a clearer path to profitability.

The firm believes HubSpot could be an acquisition target. However, Rosenblatt says the company appears to be committed to remaining independent.

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By Rob DeFrancesco, Editor of Tech-Stock Prospector

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