Shares of Hubspot, Inc. HUBS rose more than 3% yesterday, after the company reported stellar second-quarter 2018 results. The company delivered non-GAAP earnings of 18 cents per share which soared157.1% from the year-ago quarter. The figure also beat the Zacks Consensus Estimate by a couple of cents.
Revenues of $122.6 million surged 37.6% (34% on a constant currencybasis) year over year in second-quarter 2018. The figure surpassed the Zacks Consensus Estimate of $118 million as well as the guided range of $117-$118 million.
Year-over-year growth in revenues can be primarily attributed to growing customer base, which increased 40% to 48,091, and favorable foreign exchange movement in the reported quarter. Moreover, higher Subscription and Professional services revenues positively impacted the quarter’s revenues.
Notably, shares of Hubspot have gained 36% year to date, significantly outperforming the 12.1% rally of the industry it belongs to.
Quarter Details
Subscription revenues (95.1% of the total revenues) increased 38.2% from the year-ago quarter to $116.6 million. Professional services and other revenues (4.9%of the total revenues) were up 27.1% year over year to almost $6 million.
Average subscription revenue per customer decreased 2% year over year to $10,004.
Deferred revenues grew 38% year over year to $153.8 million.Meanwhile,calculated billings, defined as revenues plus the change in deferred revenues came in at $125.6 million, up 32% year over year. Calculated billings grew 34% on a constant currency basis.
International revenues surged 61% year over year (51% on a constant currency basis)representing 37% of total revenues in the reported quarter.
HubSpot ended the quarter with more than 175 party integrations, including the likes of Shopify, Facebook, Stride and Slack, among others compared with the year-ago figure of 83 integrations.
Other Developments
Management is optimistic regarding the launch of ServiceHub in the quarter. The new solution is part of HubSpot's free CRM and offers companies comprehensive details of a customer's journey, eventually increasing customized solutions.
HubSpot also introduced new Slack integration. The new offering is aimed at transforming Slack conversations to HubSpot CRM Tasks consequently enhancing productive tasks.
Margin Highlights
Gross margins during the quarter came in at 81%, up 1 point year over year. Subscription gross margin was 86%, marginally up year-over-year.
The company reported non-GAAP operating income of $6.5 million, soaring 166.6% from the year-ago quarter. Non-GAAP operating margin expanded 260 basis points (bps) on a year-over-year basis to come in at 5.3%.
Balance Sheet & Cash Flow
Hubspot ended the quarter with cash, cash equivalents and investments balance of $550.3 million compared with $557.5 million recorded at the end of the previous quarter.
Cash flow from operations during the quarter came in at $13.5 million. During the quarter, free cash flow came in at $5.2 million compared with the previous quarter’s figure of $17.9 million.
HubSpot, Inc. Price, Consensus and EPS Surprise
HubSpot, Inc. Price, Consensus and EPS Surprise | HubSpot, Inc. Quote
Guidance
HubSpot forecasts revenues in the range of $125.6-$126.6 million for third-quarter 2018. The Zacks Consensus Estimate is pegged at around $125 million.
Management expects non-GAAP operating income in the range of $1-$2 million for the third quarter. Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 3-5 cents. The Zacks Consensus Estimate is pegged at 8 cents per share.
For full-year 2018, HubSpot updated guidance. The company now expects revenues in the range of $496.8-$498.8 million (previous guidance $489 million to $492 million). The Zacks Consensus Estimate is currently pegged at $491.6 million..
Non-GAAP operating income is now projected in the range of $24.3-$26.3 million (previously guidance was in the range of $22-$25 million). Non-GAAP net income per share is now anticipated to be in the range of 63-67 cents (previously 59-65 cents). The Zacks Consensus Estimate is pegged at 62 cents per share.
To Conclude
We believe portfolio expansion and collaborations bode well. Adoption of Google cloud remains a positive. Moreover, integration of its various in house offerings is likely to improve subscription levels going ahead, consequently bolstering the top line.
Zacks Rank & Other Stocks to Consider
Hubspot carries a Zacks Rank #2 (Buy).
Mellanox MLNX, Microsoft MSFT and Intel INTC are a few stocks worth considering in the broader technology sector, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Mellanox, Microsoft and Intel are pegged at 15%, 12.3% and 8.4%, respectively.
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