There are certain stocks that continue to deliver the goods even in the face of macroeconomic headwinds. HubSpot HUBS is one such stock that has been consistently increasing its customer base and expanding international footprint but has been weighed down by adverse impact of foreign exchange rate volatility and increasing operating losses.
Shares of HubSpot have gained 90% on a year-to-date basis, significantly outperforming the industry’s rally of 32%. The long-term expected EPS growth rate is 50%.
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The company’s revolutionary marketing and sales applications, expanding international footprint and significant scope in cross-selling sales products to its existing market customer base are key catalysts.
Factors Worth Considering
HubSpot reported adjusted profit of 3 cents per share in the third quarter of 2017 against a loss of 5 cents per share in the year-ago quarter and beat the Zacks Consensus Estimate of a loss of 4 cents per share. The company has delivered a positive earnings surprise in each of the past four quarters with an average surprise of 199.4%.
Its performance has been backed by the company’s customer friendly marketing and sales applications, enabling businesses to easily reach, acquire and retain customers. Additionally, the introduction of enhanced social tools for HubSpot’s Marketing Hub enables users to convert Facebook FB and Instagram audience into potential customers.
This integration of HubSpot’s services with social media giants is expected to boost the company’s top line going ahead.
We believe that HubSpot has significant scope for cross-selling sales products to its existing marketing customer base, led by its One HubSpot initiative. We believe that given its exceptional marketing and sales services, many of the customers that use these services for free will transition to HubSpot’s pro products.
HubSpot’s acquisition of Motion AI, a leading provider of Chat bot building tools, will help users without programming skills create chat bots that work on platforms such as Facebook Messenger, Slack and SMS.
HubSpot is expanding its international footprint rapidly. The company currently has international offices in Dublin, Sydney, Singapore and Tokyo. We expect the growing footprint will aid the company’s top-line performance.
Risk Persists
Although the company’s $50 per month marketing starter pack will increase its customer base, it can also lead to product cannibalization. We infer that management may not continue with this offer price for long, eventually increasing prices which can lead to cancellation of subscriptions cancellation. This will have an adverse impact on revenues.
Since Hubspot’s increasing international footprint contributes a significant portion to its revenues, we believe that foreign exchange rate volatility may impede revenue growth in the near term, due to a strengthening U.S. dollar.
Additionally, mounting losses since the company’s inception doesn’t augur well for investors’ confidence, in our view.
Zacks Rank and Stocks to Consider
HubSpot carries a Zacks Rank #3 (Hold).
Some of the better-ranked stocks in the broader technology sector include NetApp, Inc NTAP and NVIDIA Corporation NVDA. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NetApp and NVIDIA have long-term expected EPS growth rate of 11.34% and10.25%, respectively.
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