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Why Is HubSpot (HUBS) Down 2.7% 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 lost about 2.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HubSpot due for a breakout? 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 Tops Q3 Earnings & Revenues, Ups '18 View

Hubspot, Inc. delivered third-quarter 2018 non-GAAP earnings of 17 cents per share which soared 157.1% from the year-ago quarter. The figure also beat the Zacks Consensus Estimate by 12 cents.

Revenues of $131.8 million surged 34.9% (35% on a constant currency basis) year over year in third-quarter 2018. The figure surpassed the Zacks Consensus Estimate of $127 million as well as the guided range of $125.6-$126.6 million.

Year-over-year growth in revenues can be primarily attributed to growing customer base, which increased 40% to 52,505, and lower attrition rate in the reported quarter. Moreover, higher Subscription and Professional services revenues positively impacted the quarter’s revenues.

Quarter in Detail

Subscription revenues (95.2% of the total revenues) increased 34.7% from the year-ago quarter to $125.5 million. Professional services and other revenues (4.8%) were up 39.1% year over year to $6.3 million.

Average subscription revenue per customer decreased 4% year over year to $9,959.

Deferred revenues grew 35% year over year to $162.6 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $140.7 million, up 32% year over year. Calculated billings grew 34% on a constant currency basis.

International revenues surged 52% year over year and on a constant currency basis, as well, representing 38% of total revenues in the reported quarter.

Management notes that third party integrations with companies including the likes of Shopify, Slack, among others are going in accordance. ServiceHub, launched in the second quarter, is anticipated to boost third party integrations, going forward with services like ZenDesk and Intercom.

The company is optimistic regarding the adoption of ServiceHub. The new solution is part of HubSpot's free CRM. It offers companies comprehensive details of a customer's journey, eventually increasing customized solutions.

The new Slack integration offering aimed at transforming Slack conversations to HubSpot CRM Tasks in turn enhancing productive tasks, is anticipated to bolster adoption.

In the reported quarter, the company garnered a multi-year contract win with total contract value exceeding $1 million.

Management is also elated on the traction gained by newly introduced Marketing Hub Starter. Notably, the new starter product was recently enhanced by addition of an email feature.

Margin Highlights

Gross margin during the reported quarter came in at 80.5%, almost flat year over year. Non-GAAP subscription margin of 86.5% expanded 20 basis points (bps) year over year.

The company reported non-GAAP operating income of $5.9 million, soaring significantly from the year-ago figure of $0.5 million. Non-GAAP operating margin expanded 390 bps on a year-over-year basis to come in at 4.4%.

Balance Sheet & Cash Flow

Hubspot ended the quarter with cash and cash equivalents and short-term investments of $561.3 million compared with $550.3 million recorded at the end of the previous quarter.

Cash flow from operations during the quarter came in at $11.5 million. During the quarter under review, free cash flow came in at $3.2 million compared with the previous quarter’s figure of $5.2 million.

Guidance

HubSpot forecasts revenues in the range of $136.5-$137.5 million for fourth-quarter 2018.
Management expects non-GAAP operating income in the range of $11.5-$12.5 million for the fourth quarter. Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 29-31 cents.

For full-year 2018, HubSpot updated guidance. The company now anticipates revenues in the range of $505.5-$506.5 million (previous guidance $496.8 million to $498.8 million).

Non-GAAP operating income is now projected in the range of $29.5-$30.5 million (previously guidance was in the range of $24.3-$26.3 million). Non-GAAP net income per share is now anticipated to be in the range of 80-82 cents (previously 63-67 cents).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.06% due to these changes.

VGM Scores

At this time, HubSpot has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise HubSpot has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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