As small and medium-sized businesses (SMBs) navigate an uncertain economic landscape, it's more important than ever to have a reliable and effective Customer Relationship Management (CRM) system in place. That's where Hubspot (HUBS -0.78%) comes in. Its proven track record, innovative technology, and commitment to customer satisfaction make it a standout choice for businesses with between two and 2,000 employees.
Here's why Hubspot is an intelligent investment for the long haul, what factors make it a standout player in the competitive world of CRM, and why it's worth considering buying a few shares.
It's differentiating using Artificial Intelligence (AI)
For several reasons, HubSpot believes it can help its customers utilize new technology like generative AI (GenAI):
- Unlike many platforms, HubSpot offers valuable customer insights beyond basic data, including purchase history and brand engagement, which are crucial for improving marketing strategies with AI.
- HubSpot can seamlessly integrate GenAI into clients' existing workflows, allowing them to work more efficiently and intelligently without switching platforms or learning new systems.
- HubSpot believes that AI can be beneficial but also understands that humans must be involved to ensure everything is fair and safe.
So far, the two AI products it has launched are growing like weeds, with ChatSpot (a chatbot) growing to 70,000 users and Content Assistant (an AI-powered tool that can help businesses create better content) having increased by ten times since its introduction in June, with 26% of HubSpot's enterprise customers using it. The company is moving swiftly to become a leader in AI for smaller businesses that want to grow.
Wall Street has some worries
The day after HubSpot reported its second-quarter earnings on Aug. 2, the stock dropped 11% despite the company beating analysts' revenue and earnings expectations and raising its full-year 2023 guidance. A significant factor contributing to the negative response from analysts and investors is the company's faster deceleration in billings growth compared to revenue growth, which is a potential problem that may indicate some challenges for the company's future performance.
Billings growth measures the total amount of money a company has billed in a given period, including the funds already received from customers and the money still owed to the company. It is a good measure of the demand for a company's products and services, showing how much money customers are willing to commit to the company. Revenue growth measures the amount of money a company has received in a given period. It is a good measure of the delivery of a company's products and services, indicating how much money the company has made from its customers.
In general, billings growth tends to predict future revenue growth. When billings growth decelerates more than revenue growth, the company collects less money from the deals it books, which can happen for a few reasons:
- The company may be offering more discounts or promotions, which would reduce the amount of money it collects per deal.
- The company may have booked more contracts with smaller customers, reducing the money it collects per deal.
- The company may face increased competition, making it harder to close deals.
Whatever the reason, if billing growth decelerates more than revenue growth, it is a sign that the company is having trouble collecting money from its customers, which can lead to a weaker pipeline and backlog, as the company may have trouble generating new deals if it is not collecting money from its existing sales.
Hubspot is a leader in its market
Although Hubspot designs its CRM solution to accommodate any business size, the company has strategically targeted SMBs due to its competitive edge in attracting and serving this market segment. Smaller businesses require an affordable, all-in-one, easy-to-use solution to market to customers and stay competitive with large enterprises with more extensive resources. Unfortunately, SMBs often face challenges finding software companies willing to serve them due to their unattractive smaller deal sizes. Many big software companies avoid working with small businesses because they need to make enough money on the deal to make it worthwhile. That's where Hubspot comes in. The company designs its tools to serve the needs of SMBs and be affordable.
HubSpot provides many free tools for managing customer relationships. It helps companies track their contacts, send emails, chat live with customers, and see how their efforts pay off -- great for companies that want to try out HubSpot without spending any money upfront. It also offers paid products with more advanced marketing, sales, service, content management, and operations features. These products work seamlessly on one platform, giving customers a consistent experience. Over time, as its SMB customers begin to trust HubSpot, they buy more and more paid features.
HubSpot is quickly gaining new customers and expanding its existing client base. The company reported growing its customers by 23% year-over-year to 184,924 in its second-quarter 2023 earnings release. The best part is management believes they have a long runway for growth in this market. The company believes the market for its services is growing at a 10% compound annual growth rate from $45 billion in 2022 to $72 billion in 2027.
Image source: HubSpot.
By the end of 2022, Hubspot had only managed to get a mere 3.8% of its vast and rapidly growing market. Today it invests heavily in research and development, product innovation, and customer satisfaction to capture even more of that market. The company constantly updates and improves its products and services to keep up with the ever-changing needs of its customers and the market. With an innovative and customer-centric culture, HubSpot stays ahead of the competition and delivers value to its customers. It's no wonder why it's making waves in the industry!
In this market downturn, investing in a few shares of this solid company could prove to be a wise decision in five years.
