In the current lockdown environment, many companies are cutting costs through retrenchment of sales and marketing personnel.
Customer relationship management (CRM) solutions providers were expected to be badly hit by increased sales personnel retrenchments. In fact, there was considered to be a high probability of loss of clientele from these platforms, with smaller players discontinuing their use.
However, against expectations, HubSpot Inc (HUBS, Financial) has managed to deliver a decent result quarterly earnings report. The company has some strong drivers that are bound to keep it afloat even in these tough times.
Company overview
HubSpot, Inc. provides cloud-based marketing, sales and a customer service software platform that features integrated applications to help businesses attract visitors to their websites. The goal of its CRM software is to convert visitors into leads, close leads into customers and please customers so that they become promoters of those businesses.
The company’s mission is to help companies grow better. It has expanded from its initial focus on inbound marketing to embrace marketing, sales and service more broadly. Its integrated applications include social media, search engine optimization, blogging, website content management, marketing automation, e-mail, sales productivity, CRM, analytics and reporting. These applications are provided to customers through three main products: HubSpot Marketing, HubSpot CRM and HubSpot Sales.
The company has a wide presence in the Americas, Europe and the Asia Pacific, and its headquarters is in Cambridge, Massachusetts. HubSpot employs close to 3,387 people and is a prominent name in the global CRM space.
Quarterly results
HubSpot is one of those few companies I have seen that managed to beat the analyst consensus estimates for the quarter on revenue. For the quarter ended March 31, the company reported revenue of $198.97 million, which was significantly above the analyst consensus estimate of $191.24 million and represented 31% growth compared to the prior-year quarter.
Growth was largely driven by subscription revenues, which grew 33% to $191.2 million, whereas professional services and other revenues also showed a small growth of 2% to $7.7 million. One of the reasons why the company was able to show top-line growth was because of the extended credit offered to its customers, as the company’s deferred revenues grew by as much as 25% to $242 million.
However, the biggest surprise came in the form of customer growth as its customer base increased by as much as 30% to around 78,776 as compared to the previous year. The company onboarded more than 5,000 customers.
Pricing flexibility and credit
HubSpot started off catering to small businesses and has gradually expanded its target market through pricing flexibility. The company’s basic CRM offering is free of charge, and as of the writing of this article, it caters to companies with headcounts as low as two employees and as high as 2,000 employees.
The management has changed the pricing of many of its offerings to suit the current recessionary environment, minimize the loss of clients and maximize customer support. The company lifted e-mail and calling limits and added a collection of features, including meetings, bots and 1:1 video. The management also reduced the price of the starter growth suite by over 50% late in the quarter in order to reduce the financial stress on customers and enable more companies under financial strain to get started with HubSpot. This resulted in a fivefold increase in the run rate of that offering at the end of the quarter. The management also gave a lot of leeway to offer discounts and flexible payment terms to certain customers under more severe short-term financial strain.
Key takeaways
The above chart indicates the sharp stock price recovery that the company has shown. The stock price has grown 24% in the past six months.
While most of the market expected CRM companies to deliver an underperformance and a high churn of smaller clients, HubSpot still managed to perform well because of its value propositions to clients.
Most CRMs in the market today are focused on outbound marketing or cold calling. With the lockdown, these are features that are not being used, which is prompting smaller companies to discontinue the services of these CRMs to save costs. However, HubSpot’s model is focused on inbound marketing, i.e. interacting with existing customers or customers that have already had some form of dealings with the company.
With a 31% growth in the top-line, about 5,000 new customer additions and new product launches coming up every quarter, I believe that the company is poised for excellent growth in the near future.
Disclosure: No positions.
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