Please ensure Javascript is enabled for purposes of website accessibility

How We'll Know If HubSpot Is Growing Better

By Tim Beyers – Aug 16, 2019 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The bigger its ecosystem gets, the better the business gets.

HubSpot (HUBS -1.54%) says its mission is to help companies grow better. That's great, but as an investor who owns the stock, I want to know how to tell when HubSpot itself is growing better. What measures should you and I be looking at? CEO and co-founder Brian Halligan appeared to answer that question in comments he made earlier this month during the second-quarter conference call with analysts.

"Expanding functionality within our own products isn't enough," Halligan said. "We've been building a platform that enables our customers to connect all of their front-office applications into HubSpot. This will enable us to truly manage and orchestrate our customer's entire end-to-end customer experience for them."

Translation: For HubSpot, growing better means growing the ecosystem of partners that integrate with its platform, and then encouraging its 65,000-plus customers to use it more often.

A chalk wall at HubSpot's annual customer conference.

HubSpot has made a business of getting others to plug into its platform. Image source: HubSpot

Investing for growth ...

The strategy appears to be working. Halligan told analysts the company now offers "10 integrations we built, more than 300 integrations built by our app partners and many, many more lightweight integrations." The average customer integrates five different third-party applications into its HubSpot environment.

Financial results suggest a correlation between the growing number of companies integrating with HubSpot and its ability to produce sustainable growth at high margins. Gross margin, in particular, has improved every year since 2014, and sits at a six-year high of 80.7% as of this writing. The only question is whether the company can keep it up. Halligan has a strategy to do just that, but you'll need to look at HubSpot Ventures to see it clearly.

... And returns

First unveiled in a December 2018 blog post, HubSpot Ventures is a $30 million venture capital fund. To quote the company:

Portfolio companies must, among other criteria:

• Align with our mission to help millions of organizations grow better
• Have potential to deliver unique value to the HubSpot community
• Be building a leading SaaS-based product
• Embody the values in HubSpot's Customer Code and Culture Code
• Be raising a Seed, Series A, or Series B round with a notable lead investor

That second bullet point stands out, because it speaks directly to what Halligan wants when he talks of HubSpot creating a larger, more vibrant ecosystem. What better way to do that than to invest in companies that either can be made to or are already integrating with the platform?

The bottom line

We'll need to see more deals to know how serious HubSpot is about using its checkbook to beef up the number of integrations available on its platform. In the meantime, it's worth noting that all four of its 2018 investments -- Grow, Crystal Project, Blissfully Tech, and Lorem Technologies -- offer HubSpot integrations. It's a good bet the next one will too.

Tim Beyers owns shares of HubSpot. The Motley Fool owns shares of and recommends HubSpot. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HubSpot Stock Quote
HubSpot
HUBS
$270.12 (-1.54%) $-4.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.