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Here's Why HubSpot Stock Is a Buy

By Danny Vena - Feb 27, 2021 at 9:00AM

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The CRM and inbound marketing specialist surpassed $1 billion in recurring revenue and 100,000 customers.

Given its run up of more than 134% over the preceding 12 months, there were high expectations built into HubSpot's (HUBS 6.32%) stock price going into its fourth-quarter financial report. The company delivered all that investors expected and more, sailing past both management's forecast and analysts' consensus estimates. Investors celebrated, pushing the stock up 16% in the wake of its earnings report.

On this clip from Motley Fool Live, recorded on Feb. 12, "The Wrap" host Jason Hall and Fool.com contributor Danny Vena look at some of the details from the quarter and what drove the stock higher.

Jason Hall: Danny, let's go ahead and talk about HubSpot.

Danny Vena: Well, HubSpot announced earnings last night after the market close, and things were really much more upbeat than what the market was expecting.

For those who don't know HubSpot, it's a company that provides marketing and sales, customer service platform, basically CRM. Now, it's important to remember the company started out as an inbound marketing company. Essentially, helping businesses develop content and experiences that would encourage customers to seek them out, rather than the usual outbound marketing which is chasing your customers down.

So they've expanded beyond that CRM platform, and they help companies align their marketing, sales, and service, and they're trying to go for a customer experience. They're helping businesses go out there and really please their customers.

Some of the headlines, fourth-quarter revenue, rose 35% year over year to $252 million. That was driven by subscription revenue that increased 36%, and professional services that grew about 9%. Now, the professional services is only about $7 million of revenue, and it's lumpy. It's tied to onboarding new customers and helping them with specific issues, whereas the subscription revenue was about $244 million. Adjusted earnings per share (EPS) for the period was about $0.40, up from about $0.38 a year ago.

But the company issued even a separate press release, saying they surpassed 100,000 customers and $1 billion in annual recurring revenue (ARR), which was a big deal for them. They've been working on this for about 14 years now. So reaching that milestone of $1 billion in annual recurring revenues is a big deal.

They had some pretty impressive customer metrics. In fact, total customers grew to just short of 104,000, up about 42% year over year. The average subscription revenue per customer, and mind you this was in the year of the pandemic, their subscription revenue declined just 3% to about $970,058.

Now, while they don't specifically disclose what their net revenue retention rates are, in the conference call, they said that at the time of their IPO, in 2014, it was in the mid-90% range, and now, in recent quarters, they've been staying in and around 100%.

So all of that was pretty good news. I think one of the things that helped drive the stock even higher was the fact that guidance was much stronger than analyst consensus estimates. HubSpot said that the full-year 2021 revenue, they put it in a range of $1.16 billion to $1.17 billion, up 32% year over year, which was about 10% higher than analysts' consensus estimates of about $1.06 billion.

So all-in-all, it was a strong quarter. They gave strong guidance. You know, they got a little extra airplay out of the fact that they crossed the 100,000-customer mark, and the $1 billion in annual recurring revenue, and the market bid the stock up about 16% on the heels of that report.

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