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Why Is HubSpot (HUBS) Up 15.4% Since Last Earnings Report?

It has been about a month since the last earnings report for HubSpot (HUBS). Shares have added about 15.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is HubSpot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

HubSpot's Q1 Earnings Beat Estimates, Revenues Rise Y/Y

HubSpot reported impressive first-quarter 2023 results, with the bottom and the top line surpassing the respective Zacks Consensus Estimate. The Cambridge, MA-based leading marketing and sales application provider reported higher revenues year over, driven by solid customer addition, unique strategy to attract users from different market segments and accelerated pace of innovation.

Net Income

On a GAAP basis, the company incurred a net loss of $38.3 million or a loss of 78 cents per share compared with a loss of $9.3 million or a loss of 20 cents per share in year-earlier quarter. Despite top-line growth, higher operating expenses and restructuring charges led to greater loss during the quarter.

Non-GAAP net income in the first quarter was $61.6 million or $1.20 per share compared with $27.5 million or 54 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 37 cents.

Revenues

Quarterly revenues stood at $501.6 million compared with $395.6 million reported in the prior-year quarter. Healthy customer engagement and product innovation supported the 27% year-over-year improvement in the top line. Backed by its efficient go-to-market strategy, HubSpot was able to attract customers from both the lower and upper end of the market. The top line beat the Zacks Consensus Estimate of $475 million.

Subscription revenues rose by 27% year over year to $489.7 million from $384.9 million reported in the year-ago quarter. Average subscription revenue increased 6% year over year on a constant-currency basis to $11,365. The upside was primarily driven by multi-hub adoption from professional and enterprise customers. However, large volume of starter customers partially reversed this trend. Professional services and other revenues increased to $11.9 million from $10.6 million in the year-ago quarter. The organization added 9,900 net new customers during the quarter, which increased the total customer count to $177,298, up 23% year over year.

Other Details

Gross profit reported during the quarter was $419.6 million compared with $322.7 million in the year-ago quarter. Operating loss on a GAAP basis was $44.8 million compared with a loss of $11.2 million in the prior-year period. Non-GAAP operating margin improved to 13.5% from 8.8% reported in the year-ago quarter. Restructuring actions initiated in January had a positive impact on operating margin.

Cash Flow & Liquidity

During the first quarter of 2023, HubSpot generated $81.1 million cash from operating activities. As of Mar 31, 2023, the company had $325.2 million in cash and cash equivalents with $454.7 million convertible senior notes.

Outlook

For the second quarter of 2023, management expects customers to remain cautious with their spending decisions owing to a macroeconomic difficulty. Foreign exchange headwinds are likely to affect the company’s revenue growth in 2023.

HubSpot estimates second-quarter revenues in the range of $503-$505 million. Management expects non-GAAP operating margin in the band of $54-$56 million. Non-GAAP net income is anticipated within the range of 98 cents-$1.00.

For 2023, revenues are estimated in the range of $2,080-$2,088 million. The estimated range of non-GAAP operating income is $275-$279 million. Non-GAAP net income per share is likely to be in the range of $4.8-$4.85.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted -36.39% due to these changes.

VGM Scores

At this time, HubSpot has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HubSpot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

HubSpot belongs to the Zacks Internet - Software industry. Another stock from the same industry, Meta Platforms (META), has gained 16.7% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Meta Platforms reported revenues of $28.65 billion in the last reported quarter, representing a year-over-year change of +2.6%. EPS of $2.64 for the same period compares with $2.72 a year ago.

Meta Platforms is expected to post earnings of $2.87 per share for the current quarter, representing a year-over-year change of +16.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.7%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Meta Platforms. Also, the stock has a VGM Score of C.

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