HubSpot's (HUBS -2.17%) business is stronger than its recent stock price trends might suggest. The cloud-based software company recently announced stellar operating results for the fourth quarter of fiscal 2021, highlighted by positive engagement and growth and improving profitability. Management even issued a bright outlook for the current quarter and the wider fiscal 2022 year ahead.
Let's jump right in and take a closer look at three big takeaways from the earnings report.
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1. HubSpot is winning more business
Sales trends were solid, and modestly higher than expected. Revenue in Q4 jumped 47% to $369 million, which pushed overall sales to $1.3 billion in 2021. Investors had been looking for a more modest increase compared to booming results a year ago.
Instead, HubSpot grew its footprint of customers while also pushing average subscription revenue higher. The company continued to gain a bigger following outside of its core U.S. market. International revenue jumped 53% year over year after accounting for currency swings, compared to a 42% boost in the U.S. Both figures were slightly higher than in the fiscal 2021 third quarter.
In the conference call, management also credited high renewal rates and rising contract sizes for supporting growth. "The combination of our strong product innovation and internal alignment," CFO Kate Bueker said, "enabled us to deliver strong 2021 financial results."
2. Financial updates show HubSpot's losses are declining
HubSpot's finances were impressive and reflected its focus on subscription-based software services. Gross profit margin landed at 81% of sales and non-GAAP operating profit was $38 million, or 10.3% of sales compared to $25 million, or 9.8% of sales a year earlier.
The company generated plenty of cash, with improving operating cash flow helping it pay down debt while investing heavily in the business. For the full year, non-GAAP earnings were $1.97 per share compared to $1.44 per share in 2020. HubSpot continues to generate losses on a GAAP basis, but those are declining and should continue to shrink as the business grows and as subscription services become a bigger portion of total sales.
3. HubSpot sees more strong growth in 2022
HubSpot surprised investors by forecasting another strong sales year ahead. Revenue should land between $1.72 billion and $1.73 billion, management said, compared to the $1.66 billion that most Wall Street pros were predicting. That boost implies sales growth above 30% on top of this past year's 47% spike. HubSpot is calling for quickly expanding non-GAAP earnings, too. Operating income should surpass $155 million, in fact, compared to $93 million in 2021.
The stock jumped immediately following the earnings report, mainly thanks to the improving growth picture. But investors have other reasons to like this stock, including its widening addressable market, high customer engagement, and expanding portfolio of enterprise services. Together, these factors suggest that HubSpot's sales will be much larger over time than the $1.7 billion it is targeting this year.
Investor takeaway
Shares had been down significantly heading into the Q4 report, which is one factor playing into the sharp rebound after the earnings announcement. But investors considering purchasing the stock now should still see solid long-term returns if the business continues along the impressive trajectory that's characterized the last two years.
