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Why Is HubSpot (HUBS) Up 3.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for HubSpot (HUBS). Shares have added about 3.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

HubSpot Q2 Earnings & Revenues Top Estimates, Ups View

HubSpot, Inc.’s second-quarter 2021 non-GAAP earnings of 43 cents per share increased 26.5% on a year-over-year basis and beat the Zacks Consensus Estimate by 34.4%. The bottom line exceeded management’s guidance of 30-32 cents.

Revenues of $310.8 million surpassed the Zacks Consensus Estimate by 5.1% and increased 53% (up 47% on a constant-currency basis) year over year. The top line was also above the higher end of management’s guidance of $293-$297 million.

The top line was driven by improvement in subscription revenues. Growing customer base, which surged 40% year over year to 121,048, also contributed to the results.

The company also announced that Yamini Rangan was appointed as the company’s next CEO. She will take over CEO responsibilities from Brian Halligan who will transition to the role of the executive chairman on Sep 7, 2021.

Quarter Details

Subscription revenues (96.7% of the total revenues) surged 53% from the year-ago quarter’s levels to $300.4 million. Professional services and other revenues (3.3%) were up 44% year over year to $10.4 million.

Total average subscription revenue per customer was up 8% year over year to $10,198.

Deferred revenues (including current portion) as of Jun 30, 2021, increased 50% year over year to $362 million. Calculated billings, defined as revenues plus the change in deferred revenues, amounted to $334 million, surging 65% year over year (up 60% at cc).

International revenues climbed 68% from the year-ago quarter’s levels (up 54% at cc), contributing 46% to total revenues in the reported quarter. Domestic revenues rallied 42% in the quarter under review, contributing the remaining 54% to total revenues.

Margins in Detail

Non-GAAP subscription margin of 83.6% contracted 190 basis points (bps) on a year-over-year basis.

Non-GAAP Research and development (R&D) expenses, as a percentage of revenues, contracted 90 basis points (bps) year over year to 18.2%. Non-GAAP General and administrative (G&A) expenses contracted 70 bps to 8.9% on a year-over-year basis.

Non-GAAP Sales and marketing (S&M) expenses expanded 50 bps to 44.6% from the year-ago quarter’s levels.

The company reported non-GAAP operating income of $27.5 million, up 43.2% from the year-ago quarter’s figure. Management had projected non-GAAP operating income to be $19-$21 million for the second quarter.

Non-GAAP operating margin contracted 50 bps on a year-over-year basis to 8.9%.

Balance Sheet & Cash Flow

As of Jun 30, 2021, HubSpot reported cash and cash equivalents and short-term investments of $1.21 billion, up from $1.18 billion as of Mar 31, 2021.

Operating cash flow (excluding repayment of 2022 Convertible Notes attributable to the debt discount worth $3.2 million) during the reported quarter was $41.4 million compared with 72.5 million in the prior-year quarter.

Free cash flow was $25.6 million compared with the prior-year figure of $61.2 million.

Guidance

For third-quarter 2021, HubSpot forecast revenues in the range of $325-$327 million. The Zacks Consensus Estimate for revenues is currently pegged at $318.9 million.

Management expects non-GAAP operating income in the band of $27-29 million.

The company anticipates non-GAAP net income per share to be 42-44 cents. The Zacks Consensus Estimate is currently pegged at 40 cents per share.

For 2021, the company raised guidance. The company now anticipates revenues between $1.268 billion and $1.272 billion compared with the prior range of $1.237-$1.247 billion. The Zacks Consensus Estimate for 2021 revenues is currently at $1.24 billion.

Management now expects non-GAAP operating income to be $107-$109 million compared with the earlier guidance of $104-$106 million.

HubSpot now anticipates non-GAAP net income per share to be $1.67-$1.69 compared with the prior range of $1.61-$1.65. The Zacks Consensus Estimate is currently pegged at $1.65 per share.

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 7.14% due to these changes.

VGM Scores

At this time, HubSpot has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth 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 broadly 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.


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