HubSpot (HUBS -2.40%) stock had already trounced the market in the weeks leading up to the company's fourth-quarter earnings release. That rally was partly driven by a rebound in the wider tech and growth stock sector. But it was also sparked by hopes that the software specialist would have positive things to say about the 2023 fiscal year in that fourth-quarter announcement.
HubSpot did not disappoint. The management team projected strong sales growth ahead for Q1 while sounding cautiously optimistic about the full year. Let's take a look at whether those results point to continued solid returns for investors considering buying this stock.
HubSpot beat targets in Q4
HubSpot did see slowing sales trends going into late 2022. Revenue growth decelerated compared to the 31% year-over-year spike it posted in the third quarter. Revenue landed at $470 million, or well ahead of the target range that executives issued in early November calling for between $444 million and $446 million in sales.
The success was powered by a growing customer pool and higher average spending per contract. "I'm proud of the way our team stepped up to the challenging macroeconomic conditions that emerged in 2022," CEO Yamini Rangan said in a press release.
HubSpot is still losing money
It wasn't all good news in this report. HubSpot still isn't at the point where it can generate sustainable profits from its customer relationship management (CRM) suite. Operating loss expanded to $110 million in 2022 from $55 million a year earlier.
HUBS Cash from Operations (TTM) data by YCharts
Management stressed that non-GAAP (adjusted) earnings improved to $169 million from $118 million. And operating cash flow is solidly positive and growing on an annual basis. Yet HubSpot still hasn't demonstrated a clear path toward GAAP earnings after its net loss widened in 2022.
Looking ahead
HubSpot sees a solid 2023 ahead, projecting annual sales to exceed $2 billion, up from $1.7 billion last year and $1.3 billion in 2021. The company should continue benefiting from a growing customer base, but the bigger opportunity over time is to expand its relationship with its clients as HubSpot builds out its platform to cover more service areas. It has made lots of progress on this score over the past few years, but the main focus today is on competing more effectively for those larger enterprise customers.
Success here is likely a must if HubSpot is going to significantly improve on its relatively small annual sales footprint. Meanwhile, the stock isn't a big draw for value-focused investors. The company isn't generating positive net income today, and yet it is valued at over 10 times annual sales.
Still, this latest earnings update should help HubSpot earn some of that premium valuation. If the software specialist can continue winning market share, then there's a good chance that it will have the resources it needs to compete against larger, better-capitalized rivals. On the other hand, risks are higher with this stock due to its less diverse revenue stream. Shares could easily give up their early 2023 gains if an economic downturn strikes.
That's why investors might want to keep HubSpot on their watch lists as a potential growth stock to buy as they look for the company to take more concrete steps toward profitability.
