HubSpot (HUBS +3.96%) added 7,000 net new customers in the second quarter. It had told investors to expect 9,000 to 10,000.
More consequentially, management then lowered the assumption it will run on for the rest of 2026, to 5,000 to 6,000 net additions a quarter.
That is the company marking down its own customer engine by about 40%, and the market treated it accordingly. Shares fell 19% on Thursday, the session after the report. At about $210, they sit roughly 60% below the 52-week high of $525.51.
The quarter itself was fine. Revenue rose 20% year over year to $911.7 million, or 17% in constant currency.
Non-GAAP (adjusted) operating income climbed 44% to $185.3 million, lifting the adjusted operating margin to 20.3% from 17% a year ago. And free cash flow reached $167.9 million, up from $116.2 million.
The business isn't in trouble. It just told investors it will add customers more slowly than it expected.
Image source: Getty Images.
A slower customer engine
The arithmetic of the customer base is where the change lands. HubSpot ended June with 306,446 customers, up 14% year over year. Add 5,500 a quarter, the middle of the new range, and that base grows about 7% a year instead of the roughly 12% the old assumption implied.
Average subscription revenue per customer was $11,800 in the quarter, up 4% year over year as reported. Multiply the two forward and the revenue growth rate settles near 11% a year. That is the number I'd build the next three years on.
And that is a substantial step down from what the company is delivering now. Revenue growth was 20% in the second quarter. Guidance calls for 14% in the third. The full-year forecast of $3.678 billion to $3.686 billion works out to 18%.
The direction has been one way for three straight periods, and the customer reset extends it.
CEO Yamini Rangan told analysts the shortfall came from two things at once. HubSpot deliberately changed how it sells its artificial intelligence (AI) agents in April, adding trials and outcome-based pricing. Customers adopting AI, she said, "want proof of value before they commit and predictability in what it costs."
At the same time, the buying environment tightened. Rangan said deals are drawing larger buying committees and more often require approval from the C-suite or the board.
Those two causes point in different directions, which is why this matters more than one soft quarter would. Pricing changes the company chose can be unwound or repriced if they aren't working. But a slower software-buying environment isn't something management controls.
Where that leaves 2029
So take the 11% growth path seriously. Revenue goes from about $3.68 billion this year to roughly $5 billion in 2029.
Adjusted operating margin is guided at 21% for 2026, and the company's own longer-term target is 25%. Assume it gets there by 2029 and that works out to about $1.25 billion of adjusted operating income, against roughly $765 million this year.
Then there is the share count, which is doing more work here than it usually does. HubSpot repurchased $531.9 million of stock in the second quarter alone, and the board authorized up to $1 billion more on Aug. 3, over as long as 24 months.
On a company worth about $10.1 billion, that would retire a meaningful slice of the equity. And at these prices, each dollar buys more of it.
Put the three together and adjusted earnings per share likely lands around $21 to $25 in 2029 -- against guidance of $13.23 to $13.31 for this year.
NYSE: HUBS
Key Data Points
The stock's valuation is about 15 times that 2026 figure. Hold the same multiple and the range works out to roughly $315 to $375. Pay 18 times, which arguably isn't aggressive for a business growing revenue in the low teens with margins still widening, and it is $380 to $450.
Of course, the risk is that 5,000 to 6,000 turns out not to be the floor. Revenue per customer is growing just 4% a year, so the installed base isn't doing much to make up for slower customer additions.
Drop net additions to 4,000 and stall the margin at 23%, and 2029 earnings could look more like $19 a share.
Ultimately, even that case leaves the stock worth more than $210 three years out. So I think shares look attractive here.
