HubSpot, Inc.’s HUBS 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.
Notably, HubSpot stock has returned 20.5% year to date, outperforming the industry’s rally of 13.9%.
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%.
HubSpot, Inc. Price, Consensus and EPS Surprise
HubSpot, Inc. price-consensus-eps-surprise-chart | HubSpot, Inc. Quote
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, the mid-point of which is $180.8 million, is higher than the current Zacks Consensus Estimate for the period of $180.74 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. The higher end of the guided range is below the Zacks Consensus Estimate, currently pegged at 45 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. The Zacks Consensus Estimate is currently pegged at $664.85 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). The Zacks Consensus Estimate is currently pegged at $1.41.
PieSync Acquisition: Key Points
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.
The company is well poised to gain from recent acquisition of PieSync, provider of intelligent iPaaS (or Integration platform as a Service) offerings aimed at facilitating data synchronization in real-time.
Moreover, the latest acquisition is expected to aid HubSpot to capitalize on user and partner integrations with Shopify and salesforce, 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 same industry are Alteryx, Inc. AYX, Instructure, Inc. INST and Zendesk, Inc. ZEN. 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 Alteryx, Instructure and Zendesk is currently pegged at 39.85%, 30% and 29.52%, respectively.
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