Why Is HubSpot (HUBS) Down 37.9% Since Last Earnings Report?

It has been about a month since the last earnings report for HubSpot (HUBS). Shares have lost about 37.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HubSpot due for a breakout? 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 catalysts.

HubSpot Q4 Earnings & Revenues Surpass Estimates

HubSpot, Inc.’s fourth-quarter 2019 non-GAAP earnings of 45 cents per share beat the Zacks Consensus Estimate by 7.1% and surged 21.6% from the year-ago quarter. The figure also exceeded management’s guided range of 40-42 cents.

Revenues of $186.2 million comfortably surpassed the Zacks Consensus Estimate of $180.9 million and improved 29.3% (31% on a constant currency basis) year over year. The figure was also higher than management’s guided range of $180.3-$181.3 million.

The top line was driven by accelerating Subscription revenues. Further, growing customer base, which surged 30% year over year to 73,483, contributed to the results.

Quarter Details

Subscription revenues (96.2% of the total revenues) improved 31% from the year-ago quarter to $179.1 million. Professional services and other revenues (3.8%) were down 2% year over year to $7.1 million.

Total average subscription revenue per customer was up 0.3% year over year to $10,047.

Deferred revenues (including current portion) improved 26.2% year over year to $234.1 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $217 million, surging 30% year over year on reported as well as constant currency basis.

International revenues advanced 39% from the year-ago quarter (43% at cc), representing 41% of total revenues in the reported quarter.

Margins in Detail

Per management, non-GAAP gross margin during the reported quarter came in at 82%, contracting approximately 30 basis points (bps) from the year-ago quarter. We note that non-GAAP services gross margin was negative 5%. Further, non-GAAP subscription margin of 85% contracted 150 bps on a year-over-year basis.

Non-GAAP Research and development (R&D) expenses as a percentage of revenues remained flat year over year at 18%. Non-GAAP General and administrative (G&A) expenses contracted 200 bps to 10% on a year-over-year basis. Meanwhile, non-GAAP Sales and marketing (S&M) expenses expanded 100 bps to 44% from the year-ago quarter.

The company reported non-GAAP operating income of $17.6 million, soaring 24.5% from the year-ago figure. Non-GAAP operating margin contracted 30 bps on a year-over-year basis to 9.5%.

Balance Sheet & Cash Flow

HubSpot ended the fourth quarter with cash and cash equivalents and short-term investments of $961.5 million, up from $948.5 million at the end of the previous quarter.

Cash flow from operations during the reported quarter came in at $47.9 million compared with $19.7 million reported in the prior quarter.

Free cash flow came in at $24.4 million compared with the prior-quarter figure of $6.7 million.

Guidance

For first-quarter 2020, HubSpot forecasts revenues in the range of $192.5 million to $193.5 million.

Management expects non-GAAP operating income in the band of $9.5-$10.5 million for the first quarter.

Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 22-24 cents.

For 2020, HubSpot forecasts revenues in the range of $840.5 million to $844.5 million.

Management expects non-GAAP operating income in the band of $54-$58 million for the full year.

HubSpot anticipates non-GAAP net income per share to be in the range of $1.24-$1.32.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -51.03% due to these changes.

VGM Scores

Currently, HubSpot has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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