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HubSpot Continues Its Rapid Sales and Customer Growth in the Fourth Quarter

By Chris Neiger - Updated Feb 14, 2018 at 3:44PM

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The company is proving the freemium software model works.

Cloud-based sales and marketing platform specialist HubSpot (HUBS 4.63%) saw its total sales, subscription revenue, and new customer acquisitions all spike in the fourth quarter. The company also finished out 2017 with a vast improvement in non-GAAP income. Here are some of the highlights from the recent quarter.

HubSpot results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Sales

$106.5 million

$76.4 million

39%

Net income

($11.5 million)

($13.8 million)

N/A

Earnings per share

($0.31)

($0.39)

N/A

Data source: HubSpot.

A tablet with charts on the screen rests on a table.

Image source: Getty Images.

What happened with HubSpot this quarter?

HubSpot's fourth-quarter and full-year performance put it on a stronger financial footing.

  • The company saw big improvements in its subscription revenue, which increased 40% year over year, to $101.7 million.
  • HubSpot's professional services and other revenue segment grew by 20% and contributed $4.8 million to the top line in the fourth quarter.
  • Non-GAAP operating margin improved to 4.1% in the quarter, which was a huge improvement over the same time a year ago, when it was negative 5.9%.
  • Full-year 2017 non-GAAP revenue moved into positive territory at $8.6 million, compared to a loss of $11.9 million in 2016.
  • Sales for the full year came in at $376.6 million, up 39% from 2016, and subscription revenue jumped by 40% to $356.7 million.
  • HubSpot generated $7 million of free cash flow in the quarter, compared to a loss of $1.7 million in the fourth quarter of 2016.
  • Total customers grew to 41,593 in 2017, up 48% compared to the previous year.
  • Total average subscription revenue per customer was $10,255 in the fourth quarter.
  • HubSpot also announced CFO John Kinzer will be leaving at the end of 2018.

What management had to say

CEO Brian Halligan said on the company's earnings call:

The fourth quarter closed out a great year of performance, where HubSpot's full year revenue grew 39%, total sales and marketing customers surpassed 41,000 and non-GAAP operating margins grew to a positive 2%. Very, very happy with HubSpot's performance over the last year.

Halligan spoke about the company's commitment to a freemium model -- where customers use a free version for a while and then later upgrade to a more complete, paid version -- and how it helped the company grow in 2017. He said HubSpot has added lots of free users and has figured out how to turn many of them into paying customers:

We added loads of free users to the platform, and we increased the amount of revenue that's originating from our free products as well. It took a bit of time to figure it out, but our sales team has made a lot of progress on this front, and momentum is really starting to gain steam. In 2018, we're going to keep our foot on the accelerator with R&D investments we're making into the freemium product.

Looking ahead

HubSpot's management expects sales to be in the range of $109.2 million to $110.2 million in the first quarter, and non-GAAP operating income to be $4.5 million at the midpoint. Executives believe non-GAAP net income will continue to climb sequentially to $0.11 per share at the midpoint of guidance.

Halligan is confident the company will continue to build on its growth from 2017 as it moves further into this year.

He said on the call: "Ultimately, when we look out beyond 2018, we continue to see a ton of opportunity, some of which we'll be able to share with you at our INBOUND event in September. But suffice it to say, we don't feel like we're anywhere close to being done with where we can go with our products, the company, this vision and the value we can deliver for our customers worldwide."

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