Artificial intelligence (AI) has become all the rage since early 2023, so it's easy to forget that these sophisticated algorithms have been around in some form or another for decades, helping early adopters become some of the world's most valuable companies.
Microsoft tops the list at $2.9 trillion, having wrested the crown from Apple, which clocks in at No. 2 at $2.6 trillion. Nvidia, which currently ranks third at $2.1 trillion, arguably helped kick-start the current AI revolution, thanks to its processors that underpin the technology. Alphabet, Amazon, and Meta Platforms each have a long history of using AI to advance their business objectives and are also members of this elite fellowship.
With a market cap of roughly $31 billion (as of this writing), it might seem laughable to suggest that HubSpot (HUBS 0.82%) might be on the fast track to the $1 trillion club. However, the company's quickly growing customer list, ever-expanding market opportunity, and strategic use of AI could give HubSpot a clear path to membership.
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An inbound advertising pioneer -- and so much more
Unless you've worked in the advertising field, you might not be familiar with HubSpot, but the company pioneered the concept of inbound marketing -- attracting potential customers with compelling online content, social media, and blog posts -- rather than hounding them with traditional ads.
From those humble beginnings, HubSpot has expanded its offerings to include a broad cross-section of interconnected customer relationship management (CRM) tools, which include marketing, sales, service, content management systems, and operations.
That strategy has served the company well. By expanding its suite of products and services, HubSpot's revenue has increased at a compound annual growth rate (CAGR) of 38% over the past decade. Even as the economy was emerging from the worst downturn since 2008, HubSpot's growth persisted.
In 2023, its revenue of $2.17 billion climbed 25%, while adjusted operating income soared 95%. This was driven by a customer base that grew 23% to 205,091, while its average revenue per customer continue to trudge higher, up 1%.
This uninterrupted growth appears poised to continue. Management estimates HubSpot's total addressable market (TAM), which clocked in at $51 billion last year, will rise to $77 billion by 2028.
Furthermore, the company's outlook -- which tends to be conservative -- is forecasting revenue growth of roughly 18% over the coming year to $2.555 billion at the midpoint of its guidance.
Finally, HubSpot has a long track record with AI. Years before AI attracted the public spotlight, the company debuted "predictive lead scoring," which used machine learning to scour thousands of new sales leads, prioritizing them according to how likely they are to convert.
More recently, the company launched a comprehensive AI strategy dubbed HubSpot AI, which will be integrated across its vast CRM platform, providing a wealth of information and practical AI-powered tools for its customer base. Given the strong interest and accelerating demand for generative AI, this will likely fuel additional growth.
The path to $1 trillion
HubSpot is in an enviable position in the CRM marketplace. The company's focus on small and medium-sized businesses has yielded exceptional growth in a segment of the market that had historically been unattractive to larger rivals. This helps HubSpot attract and retain loyal customers while their businesses are still small, and those same clients tend to stay on when their businesses are much larger.
Despite those clear advantages and the vast opportunity, it will still be some time before HubSpot joins the fraternity of trillionaires. According to Wall Street, HubSpot is expected to generate revenue of $3.05 billion in 2024, giving it a price-to-sales (P/S) ratio of roughly 14. Assuming its P/S remains constant, HubSpot would have to grow its revenue to about $70 billion annually to support a $1 trillion market cap, which is clearly far into the future.
If the company were able to keep up its high double-digit year-over-year growth rate, HubSpot could reach the $1 trillion market cap threshold by 2037. However, given its CAGR of 38% over the past decade, it's entirely likely HubSpot's revenue could reaccelerate once the inflationary dragon has finally been slain. If we were to increase its revenue growth rate to 28%, HubSpot could potentially reach a $1 trillion market cap as early as 2033.
Therefore, if HubSpot is able to capture just a small part of its $77 billion opportunity, the company could be well on the way to joining the $1 trillion club.
