Strong results and solid guidance weren't enough to prevent a steep decline for HubSpot (HUBS 15.40%) on Thursday. The software company beat analyst expectations for the third quarter across the board, and its outlook for the final quarter of 2025 was a bit better than expected.
Nevertheless, investors punished the stock. Shares of HubSpot were down about 18.3% at 11:45 a.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
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Valuation could be the problem for HubSpot
HubSpot grew revenue by 21% year over year in the third quarter to $809.5 million, and its adjusted earnings per share surged by 22% to $2.66. The company's total customer count jumped 17% to 278,880, and average subscription revenue per customer increased by 3% to $11,578.
HubSpot's outlook was also positive. For the fourth quarter, the company sees revenue growing by 18% year over year to a range of $828 million to $830. Adjusted EPS is expected between $2.97 and $2.99, a healthy jump from the third quarter. The company highlighted artificial intelligence (AI) features as a key growth driver as it rapidly integrates the technology across its product portfolio.
Why did the stock tumble despite strong results and guidance? Valuation could be part of the story.
Prior to the third-quarter report, HubSpot stock traded for nearly 50 times the average analyst estimate for full-year adjusted earnings. The price-to-earnings ratio is lower following Thursday's rout, but it's still in nosebleed territory. While HubSpot's third-quarter report looked good, it may not have been good enough to justify the valuation.
NYSE: HUBS
Key Data Points
Buy the dip on HubSpot?
Is Thursday's rout a buying opportunity?
HubSpot stock still trades at a forward P/E ratio of about 40, which is certainly high. Given the uncertainty plaguing the U.S. economy and the recent rumblings about an AI bubble, such a lofty premium is tough to swallow. HubSpot is performing well overall, but the pricey stock doesn't look all that attractive in the current environment.
