HubSpot, Inc.’s HUBS 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.
Following stellar second-quarter results and raised 2019 guidance, shares are up around 7% in the pre-market. Notably, HubSpot stock has returned 28.5% in the past year, outperforming the industry’s rally of 9.7%.
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.
HubSpot, Inc. Price, Consensus and EPS Surprise
HubSpot, Inc. price-consensus-eps-surprise-chart | HubSpot, Inc. Quote
Free cash flow came in at $3.4 million compared with the previous quarter’s figure of $30.6 million.
Promising Guidance for Q3
HubSpot forecasts revenues in the range of $168 million to $169 million for the third quarter of fiscal 2019. The Zacks Consensus Estimate is currently pegged at $167.11 million.
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. The Zacks Consensus Estimate is currently pegged at 22 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. The Zacks Consensus Estimate is currently pegged at $657.69 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). The Zacks Consensus Estimate is currently pegged at $1.29.
We believe HubSpot is benefiting from well defined-diversified subscription services at different user levels for its CRM, Sales Hub, Service Hub and Marketing Hub offerings.
Moreover, the company is expected to capitalize on user and partner integrations backed by robust innovative initiatives. Markedly, integration of its various in-house offerings is likely to improve subscription levels going ahead, consequently bolstering the top line.
Further, positive trend in conversion of freemium users to paid subscribers is anticipated to boost revenue growth in subsequent quarters.
Zacks Rank & Stocks to Consider
HubSpot currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector worth considering are Chegg CHGG, Rosetta Stone RST and Anixter International AXE. All the three stocks flaunt a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Chegg, Rosetta Stone and Anixter is currently pegged at 30%, 12.5% and 8%, respectively.
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