It has been about a month since the last earnings report for HubSpot (HUBS - Free Report) . Shares have added about 6.5% 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 its most recent earnings report in order to get a better handle on the important drivers.
HubSpot Beats on Q2 Earnings & Revenues, Raises View
HubSpot’s second-quarter 2019 non-GAAP earnings of 37 cents per share beat the Zacks Consensus Estimate by 48% and soared 105.6% from the year-ago quarter. The figure also exceeded management’s guided range of 24-26 cents.
Revenues of $163.3 million comfortably surpassed the Zacks Consensus Estimate of $157 million and surged 33.2% (36% on a constant currency basis) year over year. The figure was also higher than management’s guided range of $156.5-$157.5 million.
Year-over-year growth in revenues can primarily be attributed to growing customer base, which surged 35% to 64,836. Moreover, higher Subscription and Professional services revenues positively impacted the reported quarter’s revenues.
Subscription revenues (95.5% of the total revenues) increased 33.7% from the year-ago quarter to $155.9 million. Professional services and other revenues (4.5%) were up 22.8% year over year to $7.4 million.
Total average subscription revenue per customer decreased 1% year over year to $9,913.
Deferred revenues (including current portion) grew 29% year over year to $198.1 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $167.9 million, surging 34% year over year (up 34% at cc).
International revenues advanced 41% from the year-ago quarter (50% at cc), representing 40% of total revenues in the reported quarter.
Margins in Detail
Non-GAAP gross margin during the reported quarter came in at 82%, expanding 200 bps from the year-ago quarter. Non-GAAP subscription margin of 86% remained flat on a year-over-year basis. Services gross margin came in at 7%.
Non-GAAP Research and development (R&D) expenses as a percentage of revenues expanded 70 bps to 18.3%. Meanwhile, non-GAAP Sales and marketing (S&M) and General and administrative (G&A) expenses contracted 170 bps and 60 bps to 45.1% and 10.5%, respectively, on a year-over-year basis.
The company reported non-GAAP operating income of $13.8 million, soaring 112.7% from the year-ago figure. Non-GAAP operating margin expanded 310 bps on a year-over-year basis to come in at 8.4%.
Balance Sheet & Cash Flow
HubSpot ended the second quarter with cash and cash equivalents and short-term investments of $955.2 million, down from $969.1 million recorded at the end of the previous quarter.
Cash flow from operations during the reported quarter came in at $13.7 million compared with $37.7 million reported in the first quarter.
Free cash flow came in at $3.4 million compared with the previous quarter’s figure of $30.6 million.
Guidance for Q3
HubSpot forecasts revenues in the range of $168 million to $169 million for the third quarter of fiscal 2019.
Management expects non-GAAP operating income in the band of $8-$9 million for the third quarter.
Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 22-24 cents.
Raised 2019 Outlook Fuels Optimism
For full-year 2019, HubSpot raised guidance. The company now expects revenues in the range of $663-$665 million, up from previously guided range of $655.5-$658.5 million.
Non-GAAP operating income is now projected in the range of $54-$55 million (prior guidance was in the range of $50-$52 million).
Non-GAAP net income per share is now anticipated to be in the range of $1.39-$1.41 (previously $1.26-$1.30).
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 16.67% due to these changes.
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 fifth 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.
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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.