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    HubSpot Inc (HUBS)

    Q3 2024 Earnings Summary

    Reported on Jan 16, 2025 (After Market Close)
    Pre-Earnings Price$597.79Last close (Nov 6, 2024)
    Post-Earnings Price$632.01Open (Nov 7, 2024)
    Price Change
    $34.22(+5.72%)
    • Strong momentum in AI products, with early traction in CoPilot and agents, leading to increased customer engagement and value. HubSpot's AI assistant, CoPilot, is gaining traction, with AI awareness growing by 13% quarter-over-quarter and engagement from two-thirds of enterprise and half of Pro customers.
    • Increased multi-hub adoption, as customers consolidate their tech stack on HubSpot's platform. This has led to larger deals and higher attach rates of Content and Service Hubs, with over 50% of new business in Pro Plus tiers coming from customers using three or more hubs, and the Content Hub attach rate to Marketing Hub at nearly 50%.
    • Strategic acquisition of cash flow, enhancing HubSpot's commerce capabilities and providing a platform advantage. This acquisition enables a unified platform combining customer and transaction data, supporting HubSpot's vision to make it easy for sellers to sell and buyers to buy.
    • Continued headwinds on upgrade motions impacting net revenue retention. HubSpot is experiencing ongoing pressures on upgrade motions, including addition upgrades, cross-sell, and contact upgrades. CFO Kathryn Bueker stated, "All the other upgrade motions continue to have pressure... It's across the board there. So nothing specific to call out." She also mentioned that "it's hard to say when that is going to change" , indicating uncertainty in improving net revenue retention, which could impact future growth.
    • Uncertainty in growth outlook and macro environment. When asked about the growth outlook for 2025, CFO Kathryn Bueker said, "It's obviously really early for us to start talking about 2025... There's a lot of uncertainty still out there in the market". This uncertainty, coupled with operating in a "value-conscious buying environment" , may pose risks to future growth projections.
    • Increased investment in AI may pressure margins. HubSpot is heavily investing in AI, which could impact margins. CFO Kathryn Bueker noted, "AI is a top priority investment area for us, and you do see some impact although still modest on our cost of goods sold from the AI investments". Increased R&D expenses and potential costs associated with AI initiatives may pressure operating margins if not offset by corresponding revenue growth.
    1. Revenue Guidance Raise
      Q: What's driving the stronger revenue guidance raise?
      A: HubSpot beat Q3 guidance by $24 million and is raising full-year guidance by an additional $3 million due to incremental FX benefits expected in Q4. On a constant currency basis, the Q4 outlook remains unchanged with 15% growth. They feel good about the pipeline and are focused on executing in the big Q4.

    2. Net Revenue Retention Trends
      Q: Any updates on net revenue retention trends and headwinds?
      A: Net revenue retention is stable, with strong customer dollar retention in the high 80% range. Downgrades have stabilized, and they're seeing some positive signs in seat upgrades due to the new pricing model. However, other upgrade motions like addition upgrades, cross-sell, and contact upgrades continue to face pressure.

    3. Growth Algorithm and Next Year's Growth
      Q: How should we think about growth expectations for next year?
      A: It's early to discuss 2025, but HubSpot remains confident due to several growth levers: low market share in a big market, trend towards bigger and multi-hub deals, transitioning to the new seat-based pricing model which is a multiyear tailwind, and aggressive innovation in AI, data, and commerce. They will provide more guidance in February.

    4. Impact of AI on Sales and Q4 Outlook
      Q: How is AI impacting sales cycles and the Q4 outlook?
      A: AI is real and providing tangible value, increasing attach rates of Content Hub and Service Hub to core hubs. Conversations are happening now, and there's momentum from Breeze and Breeze Intelligence launches. Q4 is a big quarter; they have the pipeline and are focused on execution.

    5. Upgrade Rate from Starter Editions
      Q: How is the new pricing model affecting upgrade rates from starter editions?
      A: The shift to the seat-based pricing model lowers the barrier to entry for both Starter and Professional editions. There's a more balanced mix of customer adds across Professional and Starter. Over time, they expect an increase in upgrade rates, but it's still early to provide concrete data.

    6. Competitive Dynamics in Mid-Market
      Q: How do you handle competitors' aggressive pricing in the mid-market?
      A: HubSpot competes on value, not price. They focus on total cost of ownership advantages, fast time to value in weeks, and high adoption rates in the high 80–90% range. They highlight the unified and easy-to-use platform to help customers grow.

    7. Strength in Multi-Hub Wins
      Q: What's driving the strength in multi-hub wins?
      A: Customers are consolidating and looking to HubSpot as a platform providing insights across the front office. Innovation has driven multi-hub adoption, with prevalent combinations being Marketing Hub and Sales Hub, and also including Service Hub. Content Hub and Service Hub have seen significant growth due to increased innovation.

    8. M&A Strategy and Appetite
      Q: How are you approaching M&A activity?
      A: HubSpot seeks great technology and talent to accelerate their customer platform vision without disrupting customer experience. They look for cultural fits and aim to natively build functionality into HubSpot for a seamless, crafted platform. Recent acquisitions like Clearbit and Cash Flow align with this strategy.

    9. Service Hub Growth
      Q: What's driving the growth in larger Service Hub deals?
      A: Consistent innovation in Service Hub over the past 18 months has led to 60% growth in deals with over 100 seats. They've launched Pro features, leveraged AI within support through customer agents, and introduced workspaces for customer success and support. Upmarket customers' needs for better SLA management and granular permissions have been addressed.

    10. Professional Services Revenue and Cash Flow Acquisition
      Q: What's causing the inflection in professional services revenue, and how does Cash Flow fit in?
      A: Services and other revenue, while small at 2%, is seeing growth driven by momentum in Commerce. The acquisition of Cash Flow accelerates their vision of a unified platform combining customer and transaction data. It addresses customer demand for sophisticated subscription management and CPQ functionality.