Each quarter, institutional investors with over $100 million in assets under management must disclose their equity holdings in a Form 13F filed with the SEC. That not only creates an element of transparency in the market but also allows smaller investors keep tabs on what Wall Street's top stock pickers are buying and selling.
For instance, in the fourth quarter, billionaire James Crichton of Hitchwood Capital Management started a position in MongoDB (MDB 7.69%), buying 95,000 shares for his hedge fund. And billionaire John Overdeck of Two Sigma Investments added over 173,000 shares of HubSpot (HUBS 2.96%) to his hedge fund.
Clearly, these professional asset managers see something they like, so let's take a closer look at both businesses.
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1. MongoDB
Traditional databases rely on a relational model, meaning information is stored in structured rows and columns. That model worked well for decades, as it kept storage costs low by minimizing data duplications.
But storage costs are no longer the limiting factor in software development. The most expensive part of the equation is now a developer's time. And relational models require complex formatting changes that slow workflow.
To resolve that problem, MongoDB designed a database that uses a more flexible document model. In simple terms, document databases store information in a way that resembles code, which is more intuitive for developers. Better yet, because data does not need to be broken into rows and columns, developers can work more quickly and cost-effectively.
Fueled by its first-mover status, MongoDB has become the most popular document database on the market, and the fifth most popular database of any kind, according to DB-Engines. That competitive edge has been a powerful growth driver. MongoDB's customer base grew 33% to 33,000 over the past year, fueled by strong adoption of MongoDB Atlas, a fully managed database as a service offering. In turn, revenue surged 48% to $873.8 million, and the company generated $7 million in cash from operations. That's a small figure, but it marks the first time MongoDB has generated positive cash flow on a full-year basis.
Looking ahead, the bull case for this stock is straightforward: The vast majority of modern applications generate unstructured data, meaning the information doesn't fit neatly into rows and columns -- think images, videos, and text files. And those types of applications will only become more common in the future. To that end, MongoDB puts its addressable market at $106 billion by 2024, leaving plenty of room to grow. And given its strong competitive position, I'm not surprised to see Hitchwood Capital buying this growth stock.
2. HubSpot
HubSpot specializes in customer relationship management (CRM). Its platform comprises productivity software (or hubs) for marketing, sales, service, and operations, which collectively help clients attract and engage leads, convert leads into customers, and build lasting customer relationships.
HubSpot's core innovation is inbound marketing. Traditionally, marketers have used outbound tactics, meaning they constantly bombard consumers with unsolicited digital ads. But inbound marketing flips that model around. The goal is to create engaging content that is easily discovered by interested consumers. To that end, HubSpot's marketing software helps clients publish blogs, videos, and social media content, and it incorporates search engine optimization tools to ensure consumers can find that content when it's relevant to them.
While HubSpot is far from the biggest player in the CRM industry, it holds over 33% of market share in marketing automation software, according to Datanyze. Put another way, the company has more market share than the next five competitors combined, and that strong foundation has helped HubSpot execute successfully on its land-and-expand growth strategy. Today, 60% of customers use more than one hub, up from 34% in 2017.
That uptick in adoption has fueled strong growth. The company finished 2021 with more than 135,000 customers, up 30% from 2020, and the average customer spent 15% more over the last year. In turn, revenue soared 47% to $1.3 billion, and the company posted free cash flow of $176.9 million, up from $30 million in the prior year.
Looking forward, investors have good reason to believe HubSpot can maintain that momentum. BofA Securities analyst Brad Sills puts HubSpot's addressable market at $87 billion, leaving plenty of room for growth. And given the essential nature of its CRM tools and its strong competitive position, Two Sigma Investments' decision to buy more of this tech stock makes a lot of sense.
