HubSpot Reports Strong Q3 Earnings Amid Market Challenges
A month has passed since HubSpot (HUBS) released its last earnings report, and during this time, shares have climbed approximately 14.5%, outperforming the S&P 500 index. The critical question now is whether this upward trend will continue ahead of the next earnings announcement or if a pullback is on the horizon. To better understand the current situation, we will examine the latest earnings results and market reactions.
HubSpot’s Q3 Earnings Surpass Expectations Driven by Revenue Growth
In its third-quarter earnings report for 2024, HubSpot delivered strong results, with both revenue and profit exceeding analyst predictions. Year-over-year growth was supported by increased user engagement across various product segments. The company’s focus on integrating advanced AI tools is a significant driver for this growth. However, it’s important to note that clients are exercising caution in spending due to challenging economic conditions.
Net Income
HubSpot recorded a net income of $8.1 million, or 16 cents per share, compared to a loss of $3.6 million, or 7 cents per share, in the same quarter last year. This recovery is primarily due to robust sales growth.
Non-GAAP net income rose to $116.6 million, or $2.18 per share, up from $84.9 million, or $1.62 per share, a year prior. This figure exceeded the Zacks Consensus Estimate by 29 cents.
Revenues
HubSpot’s revenue grew to $669.7 million, an increase from $557.6 million reported in the same quarter last year. This figure also surpassed the Zacks Consensus Estimate of $647 million. The company is experiencing steady adoption of its multi-hub platform among professional and enterprise customers in the upper market segments, mainly driven by the demand for marketing and sales hubs, as well as growth in the service hub area. The lower-tier market is benefiting from strong customer additions and effective pricing strategies.
The integration of HubSpot AI across its platform allows users to utilize advanced features at no extra cost. AI tools, including GPT-powered chatbots and real-time content recommendations, are becoming increasingly popular among clients for various applications such as marketing emails and personalized content.
During this quarter, HubSpot added 10,000 new customers, raising the total customer count to 238,128, a 23% increase year over year.
Subscription revenues rose to $654.7 million, up from $545.8 million in the same period last year. However, average subscription revenue per customer dipped by 2% to $11,235.
The segment for professional services and other revenues increased by 28% year-over-year, totaling $15 million.
Other Details
Gross profit reached $570.4 million, compared to $471.9 million in the year-ago quarter. The GAAP operating loss was $9.6 million, a notable improvement from an $18.6 million loss last year. Non-GAAP operating income increased to $125.2 million from $92.1 million, resulting in respective margins of 18.7% and 16.5%.
Cash Flow & Liquidity
In Q3 2024, HubSpot generated $159.5 million in cash from operating activities, a significant rise from $89 million in the prior year. As of September 30, 2024, the company held $410.1 million in cash and cash equivalents along with $457.7 million in convertible senior notes.
Future Outlook
Looking ahead to the fourth quarter of 2024, HubSpot expects revenues to fall between $672 million and $674 million. The company anticipates non-GAAP operating income between $128 million and $129 million, with non-GAAP earnings projected at $2.18 to $2.20 per share.
Given its solid performance, HubSpot raised its revenue guidance for 2024, now projecting between $2.597 billion and $2.599 billion, up from a prior estimate of $2.567 billion to $2.573 billion. Non-GAAP operating income is expected to reach $455 million to $456 million, an upward adjustment from the previous estimate of $437 million to $441 million. Additionally, non-GAAP net income per share is forecasted to be between $7.98 and $8.00, up from $7.64 to $7.70 previously.
Changes in Earnings Estimates
In the month following the earnings report, estimates for HubSpot have improved significantly.
The consensual estimate has changed by 106.19% due to these revisions.
VGM Scores
Currently, HubSpot boasts a strong Growth Score of A but lags in Momentum with a C grade. Furthermore, it received an F on the Value scale, placing it in the lowest quintile for this strategy.
Overall, HubSpot has an aggregate VGM Score of B, which may interest investors not focused on specific strategies.
Market Outlook
With estimates trending higher, it’s no surprise that HubSpot maintains a Zacks Rank of #2 (Buy). Investors can expect returns above the average in the coming months.
Industry Comparison
HubSpot operates within the Zacks Internet – Software industry. Over the past month, Meta Platforms (META), another player in this field, has seen a gain of 2.9%. Recently, Meta announced revenues of $40.59 billion for the quarter ending September 2024, reflecting an 18.9% increase year-over-year. The EPS for Meta was $6.03 compared to $4.39 a year earlier.
Analysts expect Meta to post earnings of $6.76 per share for the current quarter, marking a 26.8% increase from the previous year. The Zacks Consensus Estimate for Meta has also seen a slight increase of 0.6% over the last 30 days. Meta holds a Zacks Rank of #2 (Buy), bolstered by positive estimate revisions, and has a VGM Score of B.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
