HubSpot Shares Soar After Earnings Top Estimates; Stock Has 40% Upside Potential

Vivek M. Kumar
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HubSpot, a cloud-based marketing and sales software platform that enables businesses to deliver an inbound experience, reported better-than-expected earnings in the fourth quarter, ending the wild 2020 in a much better position as compared to before the COVID-19 pandemic hit.

Cambridge-based developer and marketer of software products reported quarterly adjusted earnings of $0.40​ per share, beating the Wall Street of $0.23 per share. Revenue surged more than 35% to $252.07 million from a year ago​; also beating the market expectations of $236.66 million.

Following this upbeat result, HubSpot shares, which surged over 150% in 2020, hit a fresh high by rising over 17% to $527.689 on Friday.

For the first quarter of 2021 HubSpot forecasts total revenue in the range of $260 million to $265 million. Non-GAAP operating income is expected to be in the range of $17 million to $19 million. Non-GAAP net income per common share is expected to be in the range of $0.28 to $0.30.

“Narrow-moat HubSpot reported another excellent quarter featuring significant upside to guidance and provided an outlook that was well ahead of expectations. We see accelerating revenue as a sign of the company’s strengthening position. Management pushed guidance nicely ahead of Street expectations for the year—but we still see upside potential, especially on profitability. We note that at the midpoint of revenue guidance for the year, HubSpot will be growing at approximately the same rate that Salesforce was at roughly the same size,” said Dan Romanoff, equity analyst at Morningstar.

“We think the portfolio keeps getting stronger, which allows new customers to land at different solutions initially, even as they adopt additional hubs over time. After rolling our annual model forward and adjusting for quarterly strength and guidance, we are raising our fair value estimate to $390 per share, from $248. With shares quadrupling since the March 2020 lows, we find valuation challenging.”

HubSpot Stock Price Forecast

Thirteen analysts who offered stock ratings for HubSpot in the last three months forecast the average price in 12 months of $537.08 with a high forecast of $725.00 and a low forecast of $445.00.

The average price target represents a 5.90% increase from the last price of $507.15. All those 13 analysts unanimously rated “Buy”, according to Tipranks.

Morgan Stanley upgraded the base target price to $567 from $435 with a high of $726 under a bull scenario and $349 under the worst-case scenario. The firm gave an “Overweight” rating on the cloud-based marketing company’s stock.

“HubSpot delivered outstanding Q4 results, with a beat across all growth metrics, combined with healthy profitability. With initial FY21 guidance suggesting a year of accelerating growth at $1B revenue scale, we think the stock deserves to trade with the best-in-class SaaS assets growing 30%+. Remain Overweight,” said Stan Zlotsky, equity analyst at Morgan Stanley.

Several other analysts have also upgraded the stock outlook. UBS raised the target price to $523 from $352. RBC upped the stock price forecast to $570 from $430. Stifel increased the price objective to $550 from $400. Needham raised the target price to $520 from $400. Truist Securities upped the price objective to $600 from $455. BMO increased the target price to $565 from $470.

In addition, Mizuho raised the stock price forecast to $525 from $360. Guggenheim upped the price objective to $600 from $400. Citigroup increased the price target to $545 from $425. Piper Sandler raised the target price to $600 from $488. Raymond James upgraded to strong buy from outperform and upped the target price to $725 from $365.

Analyst Comments

“HubSpot is an emerging leader in the Marketing Automation space, with particular strength in the SMB B2B segment. Marketing Automation is a fragmented and increasingly competitive space, but HUBS has significantly differentiated itself from peers through a focus on smaller businesses and Inbound Marketing techniques,” Morgan Stanley’s Zlotsky added.

“The TAM is potentially large ($28B) but predominately greenfield today as SMBs have been slow to adopt marketing technology historically, driving a long runway of growth in our view. HUBS currently trades at a discount to SaaS peers on a growth adjusted basis, which we expect to narrow as investors price in greater confidence in HUBS‘ durability during COVID-19.”

Upside and Downside Risks

Risks to Upside: Improving sales productivity yields better than growth and operating margins. COVID-19-driven tailwinds to Marketing Automation customer acquisition persist into 2021. Uplift from M&A potential – highlighted by Morgan Stanley.

Risks to Downside: Increased competitive pressures as HUBS moves upmarket and into the CRM/Service markets. Macro weakness drives spending slowdown among SMB customers.

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This article was originally posted on FX Empire

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