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Why Is HubSpot (HUBS) Up 10.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for HubSpot (HUBS - Free Report) . Shares have added about 10.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is HubSpot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

HubSpot Q2 Earnings & Revenues Beat Estimates, Ups ‘20 View

HubSpot's second-quarter 2020 non-GAAP earnings of 34 cents per share beat the Zacks Consensus Estimate by 41.7% and improved 9.7% from the year-ago quarter. The bottom line also exceeded management’s guided range of 23-25 cents.

Revenues of $203.6 million surpassed the Zacks Consensus Estimate by 4.2% and improved 25% (up 26% on a constant currency basis) year over year. The top line was also above the higher end of management’s guided range of $195-$196 million.

The top line was driven by accelerating Subscription revenues. Further, growing customer base, which surged 34% year over year to 86,672, contributed to the results.

Subscription revenues (96.5% of the total revenues) improved 26% from the year-ago quarter to $196.4 million. Professional services and other revenues (3.5%) were down 3% year over year to $7.2 million.

Total average subscription revenue per customer was down 5% year over year to $9,466.

Deferred revenues (including current portion) improved 22% year over year to $241 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues, amounted to $202 million, surging 21% year over year (up 21% at cc).

International revenues climbed 32% from the year-ago quarter (up 36% at cc), representing 42% of total revenues in the reported quarter.

Quarter in Detail

Non-GAAP gross margin during the reported quarter remained flat year over year at 82%. Further, non-GAAP subscription margin of 85.5% contracted 40 basis points (bps) on a year-over-year basis.

Non-GAAP Research and development (R&D) expenses as a percentage of revenues expanded 80 bps year over year to 19.1%. Non-GAAP General and administrative (G&A) expenses contracted 90 bps to 9.6% on a year-over-year basis. Meanwhile, non-GAAP Sales and marketing (S&M) expenses contracted 100 bps to 44.1% from the year-ago quarter.

The company reported non-GAAP operating income of $19.2 million, up 39.2% from the year-ago figure. Management had projected non-GAAP operating income in the band of $10.5-$11.5 million for the second quarter.

Non-GAAP operating margin expanded 100 bps on a year-over-year basis to 9.4%.

Guidance

For third-quarter 2020, HubSpot forecast revenues in the range of $210-$211 million.

Management expects non-GAAP operating income in the band of $7.5-$8.5 million.

Moreover, the company anticipates non-GAAP net income per share in the range of 11-13 cents.

For 2020, the company has raised guidance. The company now anticipates revenues between $828 million and $832 million compared with the prior range of $800-$810 million.

Management expects non-GAAP operating income in the band of $52-$54 million compared with the earlier guided range of $40-$42 million.

HubSpot anticipates non-GAAP net income per share in the range of 92-96 cents compared with the previous range of 88-92 cents.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted 7.32% due to these changes.

VGM Scores

At this time, HubSpot has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, HubSpot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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