It has been about a month since the last earnings report for HubSpot (HUBS). Shares have added about 0.6% in that time frame, underperforming 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 catalysts.
HubSpot Q3 Earnings & Revenues Beat Estimates
HubSpot’s third-quarter 2019 non-GAAP earnings of 32 cents per share beat the Zacks Consensus Estimate by 33.3% and soared 88.2% from the year-ago quarter. The figure also exceeded management’s guided range of 22-24 cents.
Revenues of $173.6 million comfortably surpassed the Zacks Consensus Estimate of $169 million and surged 31.7% (33% on a constant currency basis) year over year. The figure was also higher than management’s guided range of $168-$169 million.
Year-over-year growth in revenues can primarily be attributed to growing customer base, which surged 32% to 68,803. Moreover, higher Subscription and Professional services revenues positively impacted the third-quarter revenues.
Subscription revenues (96.2% of the total revenues) improved 33.2% from the year-ago quarter to $167.1 million. Professional services and other revenues (3.8%) were up 3.1% year over year to $6.5 million.
Total average subscription revenue per customer was up 0.3% year over year to $9,992.
Deferred revenues (including current portion) grew 25% year over year to $203.6 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $179 million, surging 27% year over year (up 30% at cc).
International revenues advanced 41% from the year-ago quarter (46% at cc), representing 40% of total revenues in the reported quarter.
Margins in Detail
Per management, non-GAAP gross margin during the reported quarter came in at 82%, expanding approximately 50 bps from the year-ago quarter, while non-GAAP services gross margin “were negative 7%.”
Meanwhile, non-GAAP subscription margin of 85.6% contracted 90 bps on a year-over-year basis.
Non-GAAP Research and development (R&D) expenses as a percentage of revenues expanded 10 bps to 18.3%. Meanwhile, non-GAAP Sales and marketing (S&M) and General and administrative (G&A) expenses contracted 70 bps and 70 bps to 47.4% and 10.3%, respectively, on a year-over-year basis.
The company reported non-GAAP operating income of $10.5 million, soaring 79.4% from the year-ago figure. Non-GAAP operating margin expanded 170 bps on a year-over-year basis to come in at 6.1%.
Balance Sheet & Cash Flow
HubSpot ended the third quarter with cash and cash equivalents and short-term investments of $948.5 million, down from $955.2 million at the end of the previous quarter.
Cash flow from operations during the reported quarter came in at $19.7 million compared with $13.7 million reported in the second quarter.
Free cash flow came in at $6.7 million compared with the prior-quarter figure of $3.4 million.
For fourth-quarter 2019, HubSpot forecasts revenues in the range of $180.3 million to $181.3 million.
Management expects non-GAAP operating income in the band of $17.1-$18.1 million for the fourth quarter.
Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 40-42 cents.
Raised 2019 View
For full-year 2019, HubSpot raised guidance. The company now expects revenues in the range of $669-$670 million, up from the previous guidance of $663-$665 million.
Non-GAAP operating income is now projected in the range of $54.5-$55.5 million (prior guidance was in the range of $54-$55 million).
Non-GAAP net income per share is now anticipated to be in the range of $1.44-$1.46 (previously $1.39-$1.41).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, HubSpot has a strong 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 lowest 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.
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.
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