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Is HubSpot (HUBS) A Great Investment Choice?

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Baron Funds, an asset management firm, published its “Baron Asset Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A decline of 0.14% was delivered by the fund’s institutional shares for the third quarter of 2021, while the Russell Midcap Growth Index (the “Index”) declined 0.76%, and the S&P 500 Index gained 0.58%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Baron Asset Fund, in its Q3 2021 investor letter, mentioned HubSpot, Inc. (NYSE: HUBS) and discussed its stance on the firm. HubSpot, Inc. is a Cambridge, Massachusetts-based software company with a $39.6 billion market capitalization. HUBS delivered a 111.48% return since the beginning of the year, while its 12-month returns are up by 129.03%. The stock closed at $838.41 per share on November 17, 2021.

Here is what Baron Asset Fund has to say about HubSpot, Inc. in its Q3 2021 investor letter:

"HubSpot, Inc. is a cloud-based software provider whose initial Marketing Hub software helped establish the Inbound Marketing space. The product was initially focused on helping small and medium businesses (those with 20 to 200 employees) determine how to get customers to discover their products and services online with targeted content. The company built upon its success in this market to expand into adjacent spaces with its Sales and Service Hubs, and it has also begun selling its products to larger customers. The company’s software products have been built largely organically. We believe this has helped make the user experience easy, sped product innovation and new releases, and driven quick expansion into adjacent areas. In addition, HubSpot has a large ecosystem of integrations with third-party data sources, which makes it easy for customers to enrich their overall sales and marketing data sets.

The company’s key performance indicators (“KPIs”) include its net dollar expansion rate, net new customer additions, and revenue growth. During the past year, these KPIs have been growing faster than their recent trendline. We believe that the pandemic has increased the need for businesses to have a digital front end to attract, service, and sell to customers, resulting in the market increasingly “coming to them.” In addition, HubSpot’s enhanced product portfolio is resonating with larger-sized customers, as the company launched Enterprise versions of their Marketing and Sales Hubs.

During the past five years, growth has been tied largely to user growth. However, with the company’s continued success selling to larger customers, we believe that average subscription revenue per customer, a key measure of pricing, can soon become a more meaningful driver of revenue growth over time. In addition, the introduction of the “freemium” offering, which was launched about a year ago, has lowered the barrier for new customer adoption. This, in turn, is helping drive faster growth in the pool of customers that can be converted to paid users. HubSpot also recently announced a payments solution to make it easier for its customers to sell seamlessly online. As a result of these factors, we believe HubSpot can grow its revenues at a 30%-plus rate for several years, eventually achieving 25% to 30% free cash flow margins."

software
software

Photo by Danial Igdery on Unsplash

Based on our calculations, HubSpot, Inc. (NYSE: HUBS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. HUBS was in 54 hedge fund portfolios at the end of the first half of 2021, compared to 46 funds in the previous quarter. HubSpot, Inc. (NYSE: HUBS) delivered a 29.37% return in the past 3 months.

Disclosure: None. This article is originally published at Insider Monkey.