HubSpot: Valuation Now Makes Me Wary

Summary
  • Shares of HubSpot have continued to skyrocket to new all-time highs despite corrections across the software sector.
  • The company has recently rolled out a new content management system that can help extend its TAM.
  • Revenue growth has also continued to hold around ~30% y/y.
  • At the same time, HubSpot’s ~20x forward revenue multiple is now too rich for the company to continue rallying.
  • Looking for a helping hand in the market? Members of Daily Tech Download get exclusive ideas and guidance to navigate any climate. Learn More »
Hubspot offices
Photo by Derick Hudson/iStock Editorial via Getty Images

Though almost every single high-growth tech stock has seen significant corrections over the past two months, there have been a few notable exceptions. HubSpot (HUBS) is one of them. The CRM company best known for its focus on “inbound marketing,” which is selling to prospects who have already engaged with your brand (a “pull” method of sales rather than “push”), has continued to be an investor favorite despite the recent lack of appetite toward growth.

Shares of HubSpot are up ~35% year to date, and after a very brief ~20% correction in March, HubSpot is back up near all-time highs.

Chart
Data by YCharts

I wrote a bullish article on HubSpot earlier in January when the stock was trading around $370 per share. Now, however, with HubSpot ~40% higher, I’ve reviewed the position in my portfolio and have decided to lock in gains.

It’s easy to see why there is so much bullish optimism for HubSpot. In a very crowded field for CRM, HubSpot has distinguished itself with its inbound marketing message. Its revenue growth, at >30% y/y, is growing much faster than Salesforce’s Sales Cloud, which has seen deceleration to low-teens growth.

In addition, HubSpot continues rolling out adjacent products that help to diversify its market opportunity. Its most recent launch is a CMS (content management system) platform that helps brands build and manage websites that also optimize for SEO. This type of product has excellent synergy with the rest of HubSpot’s customer marketing and sales products, as the company’s message to customers is to focus on generating demand organically rather than via direct sales. The continued innovation that HubSpot has been able to drive will help the company to sustain its pace of growth even after it has reached a >$1 billion annualized recurring revenue (ARR) clip.

READ FULL ARTICLE HERE