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HubSpot's Second-Quarter Results Prove Product Investments Are Paying Off

By Chris Neiger – Aug 6, 2018 at 5:05PM

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The company's research-and-development spending is climbing quickly, but so are HubSpot's sales.

Cloud-based sales and marketing platform specialist HubSpot (HUBS -8.09%) reported its second-quarter 2018 results at the beginning of August, with revenue climbing 38% year over year to $122.6 million. The sales growth was fueled by rising subscription revenues, which were up 38% from the year-ago quarter, and accounted for 95% of the company's top line.

HubSpot's performance in the quarter led the company's management to increase its previous full-year revenue guidance range of $489 million to $492 million to the current forecast of $496.8 million to $498.8 million.

HubSpot's GAAP net income was a loss of $18.2 million, or $0.48 per share, in the second quarter. But non-GAAP earnings (which excludes expenses like stock-based compensation) were $7.4 million, or $0.18 per share, which was a significant jump from the $2.6 million, or $0.07, in the second quarter of last year.

Person pointing to tablet with charts on the screen.

Image source: Getty Images.

HubSpot results: The raw numbers

Metric Q2 2018 Q2 2017 Change (YOY)
Sales $122.6 million $89.1 million 38%
Net income ($18.2 million) ($9.5 million) N/A
Earnings per share ($0.48) ($0.26) N/A

Data source: HubSpot.

What happened with HubSpot this quarter?

  • HubSpot's subscription revenue grew 38% from the year-ago quarter to $116.6 million.
  • Professional services and other revenue jumped by 27% year over year, to $6 million.
  • The company's international sales growth continued to expand and was up by 61% from the second quarter of 2017. Management noted that international revenue represented 37% of HubSpot's sales in the second quarter.
  • HubSpot's total customers were up 40% year over year to 48,091, and average subscription revenue per customer was $10,004, a decrease of 2%.
  • Research and development spending spiked 79% to $28.4 million.
  • HubSpot's non-GAAP operating margin was 5.3% in the quarter, up from 2.7% in the year-ago quarter.
  • The company's free cash flow continued to climb and reached $5.2 million, up from $1.8 million in the second quarter of 2017.
  • The company ended the quarter with cash and cash equivalents of $566.6 million.

What management had to say

HubSpot's co-founder and CEO Brian Halligan said in a press release that "We're starting to see the fruits of our investment in R&D and we're excited about the progress we've made toward building out our suite of products." Halligan elaborated on the importance of the company's research and development spending on HubSpot's earnings call, saying,

Today, we have more than 175 integrations, either live or in beta, including some major ones like Facebook, Shopify, Slack, and Stripe. These R&D investments are enabling us to shift our value prop[osition] from helping companies generate leads online to helping companies craft a remarkable and complete buying experience for their customers online. [emphasis added]

Halligan said HubSpot's services are solving essential marketing problems for their customers, which is why they've been spending more money to release new products.

"[P]art of the reason our R&D investments have gone up and part of the reason I think we're going to really have a long, durable growth path here is we're going to solve a problem that's a big, big opportunity for our customers to improve the way they go to market in their go-to-market motion."

Looking ahead

HubSpot's new CFO, Kathryn Bueker, said that the company is forecasting third-quarter revenue to be in the range of $125.6 million to $126.6 million. Management also noted that non-GAAP operating income in the third quarter will be between $1 million and $2 million and that non-GAAP net income will be in the range of $0.03 to $0.05 per share.

Thanks to the company's recent performance, HubSpot's management raised its full-year revenue guidance range to the current $496.8 million to $498.8 million and increased its expectations for non-GAAP earnings as well -- from the previous guidance of $0.59 to $0.65 per share to the current range of $0.63 to $0.67 per share.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook, HubSpot, and Shopify. The Motley Fool has a disclosure policy.

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