HubSpot's Total Revenue Jumps Again, but Subscription Revenue per Customer Slips
Cloud-based sales and marketing platform specialist HubSpot (NYSE: HUBS) reported its third-quarter 2018 results at the beginning of November, and the company again delivered strong sales and subscription growth.
Revenue in the quarter jumped 35% year over year to $131.8 million, which beat HubSpot's forecast of sales between $125.6 million and $126.6 million. Subscription sales increased by 35%, to $125.5 million.
HubSpot's GAAP net income loss of $18.7 million, or $0.48 per share, widened from a year ago, when the company reported a net loss of $10.6 million, or $0.29 per share.
But on a non-GAAP basis, HubSpot's financials are moving in the right direction. Non-GAAP net income was $7.4 million in the third quarter, or $0.17 per diluted share, versus $1.3 million, or $0.03 per diluted share, in Q3 2017.
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HubSpot results: The raw numbers
Metric | Q3 2018 | Q3 2017 | Change (YoY) |
|---|---|---|---|
Sales | $131.8 million | $97.7 million | 35% |
Net income | ($18.7 million) | ($10.6 million) | N/A |
Earnings per share | ($0.48) | ($0.29) | N/A |
Data source: HubSpot. YoY = year over year.
What happened with HubSpot this quarter?
Subscription revenue, which makes up about 95% of HubSpot's total sales, popped 35%, to $125.5 million.
Professional services and other revenue was $6.3 million, up 39% from the year-ago quarter.
International revenue grew by 52% compared with the year-ago quarter. Management said that international sales now account for 38% of total revenue.
The number of HubSpot customers continues to grow, with a year-over-year increase of 40% in the third quarter, bringing the total to 52,505.
Total average subscription revenue per customer fell by 4%, to $9,959.
Research and development spending increased by 63% to $30.1 million.
The company's free cash flow increased to $3.2 million in the third quarter, an improvement over $1.8 million in the year-ago quarter.
The company ended the third quarter with $465 million in cash and cash equivalents, up from $416.6 million in the third quarter 2017.
What management had to say
Investors will likely notice HubSpot's 4% year-over-year decline in average subscription revenue per customer (ASRPC). CFO Kathryn Bueker addressed the drop on the earnings call: "As I've shared at our Investor Day in September, the largest driver of the decline in ASRPC is the significant customer growth from our relaunched marketing starter products. Average subscription revenue per customer, and our sales hub and our marketing hub ex-starter continue to have positive growth year over year."
In other words, the company's relaunched marketing starter software seems to have put pressure on its revenue-per-customer metrics in the short term. But overall, management was positive about how its customers are responding to its new and existing services.
CEO Brian Halligan said on the call: "A typical customer often starts with just one of our hubs, usually marketing or sales, and then later adds a second and a third hub. A couple of years ago, about 20% of our revenue came from multiproduct customer; since then that percentage has doubled, with over 40% of our revenue now coming from multiproduct, with room to grow even much higher."
Looking ahead
HubSpot's management forecasts fourth-quarter revenue in the range of $136.5 million to $137.5 million and for non-GAAP net income per share between $0.29 and $0.31.
Management also increased the company's full-year revenue guidance again, to a range of $505.5 million to $506.5 million -- up from the previous range of $496.8 million to $498.8 million. The company also expects non-GAAP net income per common share to be in the range of $0.80 to $0.82, up from the previous range of $0.63 to $0.67.
Halligan noted that the company aims to continue allowing its customers to easily implement new services into their business through HubSpot's flywheel approach to services: "We've made great progress over the last couple of years, but there is much work left to do to continue to further delight our customers and to reduce friction in our flywheel. We look forward to continuing to dig in on both these fronts in 2019."
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends HubSpot. The Motley Fool has a disclosure policy.
