HubSpot (HUBS) Q3 Earnings Beat Estimates on Solid Revenues
HubSpot, Inc. HUBS reported impressive third-quarter 2023 results, with the bottom and the top line beating the respective Zacks Consensus Estimate. Solid customer engagement across all market segments and growing adoption of the HubSpot AI-powered customer platform resulted in a top-line expansion year over year.
Net Income
On a GAAP basis, the company recorded a net loss of $5.5 million or a loss of 11 cents per share compared with a loss of $31.4 million or a loss of 65 cents per share in the year-ago quarter. The narrower loss was primarily attributable to solid net sales growth.
Non-GAAP net income was $83.4 million or $1.59 per share, up from $35.1 million or 69 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 36 cents.
HubSpot, Inc. Price, Consensus and EPS Surprise
HubSpot, Inc. price-consensus-eps-surprise-chart | HubSpot, Inc. Quote
Revenues
Quarterly revenues improved to $557.6 million from $444 million reported in the year-ago quarter. The top line beat the Zacks Consensus Estimate of $534 million. HubSpot is witnessing solid customer engagement, driven by its bi-modal strategy of targeting different market segments. In the premium market, customers continue to deploy multi-hub solutions to optimize their marketing, sales and service. Free sign-ups and growth optimization in the company’s starter edition led to solid customer addition in the lower end of the market.
The launch of HubSpot AI, which includes cutting-edge features such as AI assistance, AI agents, AI insights and ChatSpot, is driving more value to customers. Clients are leveraging this advance feature for multiple use cases, such as crafting marketing emails, blogs, social media publishing and more. HubSpot AI features are primarily getting solid traction among enterprise customers.
HubSpot added 9,100 net new customers during the quarter, which increased the total customer count to 194,098, up 22% year over year. The customer count fell short of our estimated figure of 196,071.
Subscription revenues rose to $545.8 million from $435 million in the year-ago quarter. The figure surpassed our estimate of $521.8 million. Average subscription revenues per customer rose 3% year over year to $11,520, driven by solid multi-hub adoption by enterprise and professional customers.
Professional services and other revenues totaled $11.7 million, up 31 % year over year. The top line marginally beat our revenue estimate of $10.9 million.
Other Details
Gross profit in the quarter was $470 million, up from $361.8 million in the year-ago quarter. Operating loss, on a GAAP basis, was $20.4 million against an operating loss of $32.2 million in the year-ago quarter. Non-GAAP operating income improved to $90.2 million from $40.7 million, with respective margins of 16.2% and 9.2%.
Cash Flow & Liquidity
In the third quarter of 2023, the company generated $89 million in cash from operating activities compared with $60.1 million cash generated in the year-ago quarter. As of Sep 30, 2023, HubSpot had $535.5 million in cash and cash equivalents with $455.7 million in convertible senior notes.
Outlook
HubSpot is increasingly focusing on collecting and enriching customers with extensive, unified data pulled from website visits, marketing e-mails, sales calls and more. The acquisition of Clearbit, a B2B data provider for marketing intelligence, will further accelerate HubSpot’s vision. The integration of Clearbit premier information pool with HubSpot AI will facilitate the development of more powerful, advance and accurate AI capabilities.
However, management expects that the macro environment will remain uncertain and customers will continue to have a cautious approach to their spending decisions. HubSpot will emphasize a combination of a flexible marketing policy and product innovation to successfully navigate through these macroeconomic headwinds.
For the fourth quarter of 2023, the company estimates revenues in the range of $556-$558 million. It expects non-GAAP operating income in the range of $85-$86 million. Non-GAAP net income is projected within the range of $1.53-$1.55.
For 2023, HubSpot raised its revenue guidance to $2.144-$2.146 billion from the previously estimated figure of $2.116-$2.122 billion. Non-GAAP operating income is expected to be within $317-$318 million, up from $293-$297 million expected earlier. Non-GAAP net income per share is likely to be in the range of $5.66-5.88 per share, up from $5.24-5.29 estimated previously.
Zacks Rank & Stocks to Consider
HubSpot currently has a Zacks Rank #3 (Hold).
Model N Inc MODN, sporting a Zacks Rank #1 (Strong Buy) at present, delivered an earnings surprise of 21.26%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 45.83%. You can see the complete list of today’s Zacks #1 Rank stocks here.
MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.
NVIDIA Corporation NVDA, currently sporting a Zacks Rank #1, delivered an earnings surprise of 9.79%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 29.19%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. ANET, presently carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12%, on average, in the trailing four quarters.
ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
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