A month has gone by since the last earnings report for HubSpot (HUBS). Shares have added about 15.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HubSpot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
HubSpot Q3 Earnings & Revenues Beat Estimates, Ups ‘20 View
HubSpot, Inc.’s third-quarter 2020 non-GAAP earnings of 28 cents per share beat the Zacks Consensus Estimate of 13 cents and improved 7.8% from the year-ago quarter. The bottom line also exceeded management’s guided range of 11-13 cents.
Revenues of $228.4 million surpassed the Zacks Consensus Estimate by 8.5% and improved 32% (up 30% on a constant currency basis) year over year. The top line was also above the higher end of management’s guidance of $210-$211 million.
The top line was driven by accelerating Subscription revenues. Further, growing customer base, which surged 39% year over year to 95,634, contributed to the results.
Subscription revenues (96.8% of the total revenues) surged 32% from the year-ago quarter to $221.1 million. Professional services and other revenues (3.2%) were down 12% year over year to $7.3 million.
Total average subscription revenue per customer was down 3% year over year to $9,669.
Deferred revenues (including current portion) improved 27% year over year to $259.1 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues, amounted to $246 million, surging 38% year over year (up 33% at cc).
International revenues climbed 40% from the year-ago quarter (up 39% at cc), representing 44% of total revenues in the reported quarter.
Margins in Detail
Non-GAAP gross margin during the reported quarter remained flat year over year at 82%. Further, non-GAAP subscription margin of 85.7% expanded 10 basis points (bps) on a year-over-year basis.
Non-GAAP Research and development (R&D) expenses as a percentage of revenues expanded 90 bps year over year to 19.2%. Non-GAAP General and administrative (G&A) expenses contracted 80 bps to 9.5% on a year-over-year basis. Meanwhile, non-GAAP Sales and marketing (S&M) expenses shrunk 100 bps to 46.4% from the year-ago quarter.
The company reported non-GAAP operating income of $16.5 million, up 57.1% from the year-ago figure. Management had projected non-GAAP operating income to be $7.5-$8.5 million for the third quarter.
Non-GAAP operating margin expanded 110 bps on a year-over-year basis to 7.2%.
Balance Sheet & Cash Flow
As of Sep 30, 2020, HubSpot reported cash and cash equivalents and short-term investments of $1.18 billion, up from $1.14 billion as of Jun 30, 2020.
Cash flow from operations during the reported quarter was $38.7 million compared with $15 million reported in the prior quarter and $19.7 million in the year-ago quarter.
Free cash flow was $25.3 million compared with the prior-quarter figure of $0.8 million and $6.7 million reported in the year-ago quarter.
For fourth-quarter 2020, HubSpot forecast revenues to be $235-$237 million. Management expects non-GAAP operating income in the band of $13-$15 million. Moreover, the company anticipates non-GAAP net income per share to be 21-23 cents.
For 2020, the company has raised guidance. The company now anticipates revenues between $866 million and $868 million compared with the prior range of $828-$832 million. Management expects non-GAAP operating income in the band of $63.5-$65.5 million compared with the earlier guided range of $52-$54 million. HubSpot anticipates non-GAAP net income per share to be $1.13-$1.15 compared with the previous range of 92-96 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 6.39% due to these changes.
Currently, HubSpot has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HubSpot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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