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HubSpot (HUBS) Gears Up for Q3 Earnings: What's in Store?

Zacks Equity Research

 HubSpot, Inc. HUBS is scheduled to release third-quarter 2019 results on Nov 5. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 88.8%.

Q3 Guidance

HubSpot forecasts revenues in the range of $168 million to $169 million for third quarter 2019. The corresponding Zacks Consensus Estimate is pegged at $169.1 million, indicating an improvement of 28.2% from the year-ago 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 24 cents per share, suggesting growth of 41.2% from the year-ago quarter. Notably, the consensus has remained stable over the past 30 days.

HubSpot, Inc. Price and EPS Surprise

 

HubSpot, Inc. Price and EPS Surprise

HubSpot, Inc. price-eps-surprise | HubSpot, Inc. Quote

Q2 at a Glance

In second-quarter 2019, HubSpot reported non-GAAP earnings of 37 cents per share, which beat the Zacks Consensus Estimate by 48% and soared 105.6% from the year-ago quarter.

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.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

HubSpot’s third-quarter performance is likely to have benefited 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 have capitalized on user and partner integrations on robust innovative initiatives. Markedly, integration of its various in-house offerings is likely to have improved subscription levels and consequently the top line in the third quarter.

Further, positive trend in conversion of freemium users to paid subscribers is likely to have continued in the third quarter and is likely to get reflected in the third-quarter revenues.

Robust adoption of its inbound marketing and sales applications over the cloud is likely to get reflected in the third-quarter results. Notably, the company’s customer base had surged 35% to 64,836 in the second quarter.

Moreover, the company’s expanding international footprint is expected to have driven the top line growth in the third quarter.

HubSpot has been striving to improve subscription levels with portfolio expansion and collaborations. Moreover, integration of its various in-house offerings is likely to have bolstered adoption of subscription services and consequently the top line in the third quarter.

In fact, HubSpot’s product portfolio has been gaining from its integration with LinkedIn, Shopify & Facebook FB, which has been enabling it in expanding business. This is likely to get reflected in the third-quarter results

HubSpot announced innovative digital functionalities on its Analyst Day event, INBOUND 2019. The company has been strengthening its platform with enhanced user engagement and greater reliability.

HubSpot rolled out intelligent duplicate management tool, which leverages ML to identify and merge duplicate company data. This tool is anticipated have benefited the company’s Enterprise and Professional customers to effectively deal with data inefficiencies caused due to deduplication of data.

We believe latest enhancements across subscription services including CRM, Sales Hub, Service Hub and Marketing Hub offerings are likely to have benefited incremental adoption and consequently the third-quarter top line.

Markedly, HubSpot has been rolling out updates to its starter packs and freemium services, which are enabling the company to attract new customers. However, the low priced pack has been deterring ASR or average subscription revenue per customer growth rate in the near term. This is likely to get reflected in the company’s third-quarter results.

The Zacks Consensus Estimate for Subscription revenues is pegged at $162 million, indicating growth of 29.6% from the year-ago quarter. Further, the Zacks Consensus Estimate for Professional Services and Other segment revenues is $7.48 million, suggesting an improvement of 17.8% from the prior-year reported figure.

What Does the Zacks Model Say

Our proven model doesn’t conclusively predict an earnings beat for HubSpot this time around. The combination of a positive Earnings ESP and Zacks Rank #3 (Hold) or higher increases the odds of an earnings beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for HubSpotis 0.00%.

Zacks Rank: HubSpot currently carries a Zacks Rank of #3.

Stocks With Favorable Combination

Here are a few stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat.

Advanced Energy Industries, Inc. AEIS has an Earnings ESP of +4.17% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altria Group, Inc. MO has an Earnings ESP of +1.75% and a Zacks Rank #3.

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