Summary
- Hubspot has grown its customer and employee count when some companies have layoffs.
- The company has also introduced a new CMS hub that should strengthen its land-and-expand model.
- The stock has risen sharply in the past month but is not trading at its historically highest multiple yet.
Hubspot Inc (NYSE:HUBS) is a good long-term investment choice due to its strong revenue growth from the company's land-and-expand model. Successful product launches have helped grow the company's number of customers and their spending levels over the years. Hubspot is entering the downturn in a position of strength due to its strong balance sheet and positive free cash flow generation. At an 11.8 price-to-sales multiple, the stock is not cheap but it is not trading above historical highs.
Hubspot had a strong quarterly result
Hubspot delivered a strong quarter where the company's revenue increased to $199M, representing a 13% year-on-year growth. Subscription revenue makes up $191M, which is 96% of Hubspot's total revenue for the quarter. This high level of predictability means that the company can expect consistent cash flows compared to software companies that take in a one-time large license fee.
The company has also been successful with its land-and-expand model. Hubspot grew total customers to 78,776 as at March 2020, up 30% year-on-year. Existing customers have also been spending more each year, with total average subscription revenue per customer 2% higher year-on-year.
Hubspot's revenue has also been powered by its international growth, which now makes up 42% of Q1 2020 revenue compared to 22% in Q3 2014. This is an important metric as it shows the scalability of Hubspot's platform on a global level. From this growth, it is likely that Hubspot's value proposition is attractive all over the world.
(Source: Investor Presentation)
Our view is that the smaller companies are being underserved by enterprise software providers, as the smaller deal sizes make it difficult to serve them efficiently. As such, Hubspot's focus has been serving this niche in a meaningful manner. We think the company has a long runway for growth as it gains new customers while increasing their usage of Hubspot services gradually through multiple hubs that the company provides.
