Sign in

    HubSpot Inc (HUBS)

    Q1 2024 Earnings Summary

    Reported on Jan 16, 2025 (After Market Close)
    Pre-Earnings Price$590.05Last close (May 8, 2024)
    Post-Earnings Price$625.00Open (May 9, 2024)
    Price Change
    $34.95(+5.92%)
    • Strong Growth Amidst Challenging Macro Environment: HubSpot is maintaining durable growth of over 20% despite a cautious buying environment, driven by customers consolidating on fewer platforms and choosing HubSpot due to its lower total cost of ownership, higher value, and faster time to value. This positions the company well for continued growth.
    • Progress Towards Profitability Targets While Investing in Innovation: HubSpot is making progress towards its profitability targets, aiming for 18% to 20% operating margins by 2026 and a long-term target of 20% to 25% profitability, while also investing disproportionately in R&D to drive innovation and plant seeds for long-term growth. This demonstrates a strong balance between growth and profitability.
    • Differentiated AI Strategy Enhancing Competitive Position: HubSpot's unique approach of embedding AI features directly into its platform makes it easy for customers to adopt and grow with AI. This strategy leverages their unified customer platform and offers a competitive advantage, particularly in moving upmarket, as it accelerates innovation and enhances customer value.
    • Softening demand and cautious customer behavior in Q1 2024: HubSpot experienced a return to weaker demand conditions in the first quarter of 2024, with customers exhibiting cautious buying behavior, longer deal cycles, tighter budgets, and increased scrutiny in decision-making processes, including more demos and proof-of-concepts before purchase decisions. This cautious environment is expected to persist throughout 2024. , , ,
    • Significant pressure on upgrade rates impacting net revenue retention: Despite strong customer dollar retention in the high 80s, HubSpot faced significant pressure on upgrade rates in Q1 2024. Net revenue retention was 101%, including the impact of the Clearbit acquisition. The challenging upgrade environment may affect future growth.
    • Decrease in partner-sourced deals leading to reliance on direct sales: HubSpot experienced fewer partner-sourced deals in Q1 2024 and had to rely more on direct sales sourcing. While co-selling motion with partners increased 65% year-over-year, the shift resulted in partners spending less time generating and sourcing their own deals, indicating potential challenges in the partner channel that need to be addressed.
    1. Seat-Based Pricing Impact
      Q: How does seat-based pricing impact revenue this year?
      A: Management explained that the shift to seat-based pricing led to a sharper decline in average selling prices (ASPs) because more customers adopted the new model faster than expected. They observed that ASPs fell by 20% to 25%, consistent with their pilot program. While they anticipated volumes to offset the lower ASPs immediately, it will take a few months for the increase in customer additions to catch up. They now expect the seat model change to be neutral to overall ARR for 2024.

    2. Macro Environment and Guidance
      Q: How does macro impact full-year guidance?
      A: Despite a cautious buying environment, management is maintaining their full-year guidance. They noted $10 million of incremental FX headwinds and another $10 million impact from the seat pricing model timing and Q1 macro pressures. They believe gross retention remains strong and are confident in their guidance approach.

    3. Net Revenue Retention and Upgrade Rates
      Q: What's impacting net revenue retention?
      A: Net revenue retention was 102% for the organic business and 101% including Clearbit. While customer dollar retention remained strong in the high 80s, upgrade rates faced significant pressure due to cautious customer spending, even with early positive signs from the new seat model.

    4. AI Strategy and Competitive Positioning
      Q: How does AI strategy affect competition upmarket?
      A: Management believes their approach to embedding AI across all hubs and the entire CRM platform differentiates them from competitors. By making AI features easy to adopt and focusing on fast time to value, they aim to help customers solve longstanding go-to-market challenges. They think this strategy is particularly effective in moving upmarket.

    5. Clearbit Contribution to Revenue
      Q: What's Clearbit's revenue contribution?
      A: Clearbit drove about 1.5 points to revenue and billings growth in the first quarter, and they expect it to provide about 1 point of growth for the full year.

    6. Top of Funnel Dynamics
      Q: What's behind lower quality top-of-funnel leads?
      A: Management observed a shift from high-quality inbound and partner-sourced leads to more rep-sourced leads in Q1. Rep-sourced leads take more time to progress in the sales pipeline and require more effort to convert, impacting sales efficiency.

    7. Management Changes
      Q: Why the changes in customer success leadership?
      A: After the departure of their Chief Customer Officer, they decided to flatten the organization, with marketing, sales, and customer success reporting directly to the CEO. They believe this structure allows for speed and execution, leveraging a deep bench of experienced leaders stepping up to lead each function.

    8. Partnerships and Channel Dynamics
      Q: How is pricing change affecting channel vs. direct sales?
      A: Pricing changes did not significantly affect the dynamics between partner and direct sales. They saw strong success with co-selling motions up 65% year-over-year, but partner-sourced deals decreased as partners focused more on co-selling. They are working to balance co-selling and partner-sourced leads.