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What's in the Offing for HubSpot (HUBS) in Q2 Earnings?

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HubSpot Inc. (HUBS - Free Report) is set to release second-quarter 2017 earnings on Aug 2. Notably, the company has positive record of earnings surprises in the trailing four quarters, with an average surprise of 20.70%.

Last quarter, the company posted a positive earnings surprise of 33.33%. The company delivered non-GAAP earnings of 3 cents in the quarter driven by top-line growth and increasing subscriber base, well ahead of the company’s expectations. Revenues advanced 44% year over year to $76.4 million, which is much better than the Zacks Consensus Estimate of $74 million.

HubSpot forecasts revenues in the range of $85$86 million for second quarter of 2017, which reflects sequential improvement of almost 4% at the mid-point. Moreover, the company expects non-GAAP net loss to be in the range 2 cents per share to breakeven.

HubSpot’s stock has gained 54.4% year to date, substantially outperforming the 18.3% rally of the industry it belongs to. The outperformance can be attributed to the improving bottom line and positive guidance.



Let’s see how things are shaping up for this announcement.

Factors to Consider

HubSpot’s cloud-based inbound marketing and sales applications are gaining widespread adoption as evident from growing customer base, which expanded to more than 31K at the end of the first quarter. We believe that the company will benefit from the One HubSpot initiative, cross-selling opportunities, growing marketing agency network and expanding international footprint.
 

HubSpot, Inc. Price and EPS Surprise

 

HubSpot, Inc. Price and EPS Surprise | HubSpot, Inc. Quote

The freemium is paying off for HubSpot as evident from the increase in subscriber base. Moreover, partnerships with the likes of Brightcove (BCOV - Free Report) and Sales Force Europe (SFE) are anticipated to boost customer base in both domestic and overseas market.

However, the $50 per month marketing starter product will continue to hurt average subscription revenue (ASR) per customer, at least in the near term. Moreover, foreign exchange volatility remains a concern.

Earnings Whispers

Our proven model does not conclusively show that HubSpot is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: HubSpot’s Earnings ESP is -2.70%. This is because the Most Accurate estimate is currently pegged at a loss of 38 cents wider than the Zacks Consensus Estimate of a loss of 37 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: HubSpot carries a Zacks Rank #2, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Kemet Corporation (KEM - Free Report) has an Earnings ESP of +11.11% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology (VSH - Free Report) has an Earnings ESP of +6.06% and has a Zacks Rank #1.

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