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Why Is HubSpot (HUBS) Down 5.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for HubSpot (HUBS - Free Report) . Shares have lost about 5.8% in that time frame, underperforming 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 catalysts.

HubSpot Beats on Q1 Earnings & Revenues Estimates

HubSpot delivered first-quarter 2019 non-GAAP earnings of 36 cents per share which soared 140% from the year-ago quarter. The figure also beat the Zacks Consensus Estimate by 44%.

Revenues of $151.8 million comfortably surpassed the Zacks Consensus Estimate of $148 million and surged 32.5% (35% on a constant currency basis) year over year The figure was also higher than management’s guided range of $146.5-$147.5 million.

Year-over-year growth in revenues can primarily be attributed to growing customer base, which surged 35% to 60,814. Moreover, higher Subscription and Professional services revenues positively impacted the reported quarter’s revenues.

Quarter in Detail

Subscription revenues (95% of the total revenues) increased 32.8% from the year-ago quarter to $144.2 million. Professional services and other revenues (almost 5%) were up 27.2% year over year to $7.6 million.

Total average subscription revenue per customer decreased 2% year over year to $9,811.

Deferred revenues (including current portion) grew 28% year over year to $193.5 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $160 million, surging 27% year over year (up 31% at cc). Management noted that unfavorable currency movements limited growth.

International revenues advanced 42% from the year-ago quarter (50% at cc), representing 39% of total revenues in the reported quarter.

Margin Highlights

Non-GAAP gross margin during the reported quarter came in at 82%, expanding 60 bps from the year-ago quarter. Non-GAAP subscription margin of 86.2% contracted 10 bps on a year-over-year basis.

Non-GAAP Research and development (R&D) expenses as a percentage of revenues expanded 40 bps to 18.5%. Meanwhile, non-GAAP Sales and marketing (S&M) and General and administrative (G&A) expenses contracted 240 bps and 80 bps to 44.2% and 10.9%, respectively, on a year-over-year basis.

The company reported non-GAAP operating income of $13 million, soaring 133.2% from the year-ago figure of $5.6 million. Non-GAAP operating margin expanded 370 bps on a year-over-year basis to come in at 8.6%.

Balance Sheet & Cash Flow

HubSpot ended the first quarter with cash and cash equivalents and short-term investments of $969.1 million up from $592.3 million recorded at the end of the previous quarter. Management attributed the increase to proceeds worth $343 million received from buyback of approximately 2.15 million shares concluded in February.

Cash flow from operations during the reported quarter came in at $37.7 million compared with $33.1 million reported in fourth quarter.

Free cash flow came in at $30.6 million compared with the previous quarter’s figure of $25.1 million.

Impressive Guidance

HubSpot forecasts revenues in the range of $156.5 million to $157.5 million for the second quarter of fiscal 2019.

Management expects non-GAAP operating income in the band of $9.2-$10.2 million for the second quarter.

Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 24-26 cents.

Updated 2019 Outlook Holds Promise

For full-year 2019, HubSpot raised guidance. The company now expects revenues in the range of $655.5-$658.5 million up from previously guided range of $648-$652 million.

Non-GAAP operating income is now projected in the range of $50-$52 million (prior guidance was in the range of $46-$50 million).

Non-GAAP net income per share is now anticipated to be in the range of $1.26-$1.30 (previously $1.08-$1.16).

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 -7.17% due to these changes.

VGM Scores

At this time, HubSpot has a great Growth Score of A, 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 fifth quintile for this investment strategy.

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

Outlook

Estimates have been broadly 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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