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Why Is HubSpot (HUBS) Down 2.9% Since Last Earnings Report?

Zacks Equity Research
In the latest trading session, Dominion Energy (D) closed at $76.66, marking a +0.78% move from the previous day.

A month has gone by since the last earnings report for HubSpot (HUBS). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HubSpot due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

HubSpot Tops Q4 Earnings & Revenues

HubSpot, Inc. delivered fourth-quarter 2018 non-GAAP earnings of 37 cents per share which soared 208.3% from the year-ago quarter. The figure also beat the Zacks Consensus Estimate by 7 cents.

Revenues of $144 million surged 35.2% (37% on a constant currency basis) year over year in fourth-quarter 2018. The figure comfortably surpassed the Zacks Consensus Estimate of $138 million and management’s guided range of $136.5-$137.5 million.

Year-over-year growth in revenues can primarily be attributed to growing customer base, which increased 36% to 56,628. Moreover, higher Subscription and Professional services revenues positively impacted the reported quarter’s revenues.

Quarter in Detail

Subscription revenues (almost 95% of the total revenues) increased 34.5% from the year-ago quarter to $136.8 million. Professional services and other revenues (5%) were up 49% year over year to $7.2 million.

Average subscription revenue per customer decreased 2.4% year over year to $10,012.

Deferred revenues (including current portion) grew 33% year over year to $185.5 million.

Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $166.9 million, surging 33% year over year. Calculated billings grew 35% on a constant currency basis. Management noted that unfavorable currency movements limited growth.

International revenues advanced 48% from the year-ago quarter (52% on a constant currency basis), representing 38% of total revenues in the reported quarter.

Management notes that third party integrations with companies including the likes of Shopify (SHOP), Slack, Stripe, among others are going in accordance with its plan. Service Hub, launched in the second quarter, is anticipated to boost third party integrations with services like ZenDesk and Intercom.

The company is optimistic regarding the adoption of Service Hub. Management is also elated on the rapid adoption witnessed by newly introduced Marketing Hub Starter. The company also announced addition of new email features and other updates to the latest Marketing Hub product at INBOUND.

Margin Highlights

Non-GAAP gross margin during the reported quarter came in at 82.3%, expanded 130 basis points (bps) from the year-ago quarter. Non-GAAP subscription margin of 86.5% expanded around 50 basis points (bps) year over year.

Total operating expenses were $124.5 million during the fourth quarter, up 31.2% year over year.

The company reported non-GAAP operating income of $14.2 million, soaring 226.7% from the year-ago figure of $4.3 million. Non-GAAP operating margin expanded 570 bps on a year-over-year basis to come in at 9.8%.

Balance Sheet & Cash Flow

HubSpot ended the reported quarter with cash and cash equivalents and short-term investments of $592.3 million compared with $561.3 million recorded at the end of the previous quarter.

Cash flow from operations during the fourth quarter came in at $33.1 million compared with $11.5 million reported in third quarter.

During the reported quarter, free cash flow came in at $25.1 million compared with the previous quarter’s figure of $3.2 million.

2018 at a Glance

In 2018, revenues grew 37% over 2017 to $513 million, majority of which came from subscriptions – 95% of total revenues. The figure was also higher than management’s guided range of $505.5-$506.5 million.

For the full year, non-GAAP earnings soared 256% from the year-ago figure of 25 cents per share to 89 cents. The reported figure was higher than management’s guided range of 80-82 cents.

Guidance

HubSpot forecasts revenues in the range of $146.5-$147.5 million for the first quarter of fiscal 2019.

Management expects non-GAAP operating income in the range of $9.5-$10.5 million for the first quarter.

Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 23-25 cents.

For full-year 2019, HubSpot projects revenues to come in the range of $648-$652 million.

Non-GAAP operating income is anticipated in the range of $46-$50 million.

Non-GAAP net income per share is anticipated in the range of $1.08-$1.16 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, HubSpot has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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