It has been about a month since the last earnings report for HubSpot (HUBS - Free Report) . Shares have added about 16.3% 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, Inc. reported stellar second-quarter 2018 results. The company delivered non-GAAP earnings of 18 cents per share which soared 157.1% from the year-ago quarter. The figure also beat the Zacks Consensus Estimate by a couple of cents.
Revenues of $122.6 million surged 37.6% (34% on a constant currency basis) year over year in second-quarter 2018. The figure surpassed the Zacks Consensus Estimate of $118 million as well as the guided range of $117-$118 million.
Year-over-year growth in revenues can be primarily attributed to growing customer base, which increased 40% to 48,091, and favorable foreign exchange movement in the reported quarter. Moreover, higher Subscription and Professional services revenues positively impacted the quarter’s revenues.
Subscription revenues (95.1% of the total revenues) increased 38.2% from the year-ago quarter to $116.6 million. Professional services and other revenues (4.9% of the total revenues) were up 27.1% year over year to almost $6 million.
Average subscription revenue per customer decreased 2% year over year to $10,004.
Deferred revenues grew 38% year over year to $153.8 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $125.6 million, up 32% year over year. Calculated billings grew 34% on a constant currency basis.
International revenues surged 61% year over year (51% on a constant currency basis) representing 37% of total revenues in the reported quarter.
HubSpot ended the quarter with more than 175 party integrations, including the likes of Shopify, Facebook, Stride and Slack, among others compared with the year-ago figure of 83 integrations.
Management is optimistic regarding the launch of ServiceHub in the quarter. The new solution is part of HubSpot's free CRM and offers companies comprehensive details of a customer's journey, eventually increasing customized solutions.
HubSpot also introduced new Slack integration. The new offering is aimed at transforming Slack conversations to HubSpot CRM Tasks consequently enhancing productive tasks.
Gross margins during the quarter came in at 81%, up 1 point year over year. Subscription gross margin was 86%, marginally up year-over-year.
The company reported non-GAAP operating income of $6.5 million, soaring 166.6% from the year-ago quarter. Non-GAAP operating margin expanded 260 basis points (bps) on a year-over-year basis to come in at 5.3%.
Hubspot ended the quarter with cash, cash equivalents and investments balance of $550.3 million compared with $557.5 million recorded at the end of the previous quarter.
Cash flow from operations during the quarter came in at $13.5 million. During the quarter, free cash flow came in at $5.2 million compared with the previous quarter’s figure of $17.9 million.
HubSpot forecasts revenues in the range of $125.6-$126.6 million for third-quarter 2018.
Management expects non-GAAP operating income in the range of $1-$2 million for the third quarter. Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 3-5 cents.
For full-year 2018, HubSpot updated guidance. The company now expects revenues in the range of $496.8-$498.8 million (previous guidance $489 million to $492 million).
Non-GAAP operating income is now projected in the range of $24.3-$26.3 million (previously guidance was in the range of $22-$25 million). Non-GAAP net income per share is now anticipated to be in the range of 63-67 cents (previously 59-65 cents).
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, HubSpot has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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.
Zacks style scores indicate that the company's stock is suitable for growth and momentum investors.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HubSpot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.