Can HubSpot Regain its Mojo After Alphabet's Buyout Snub?

Shares of HubSpot Inc. HUBS have declined more than 20% in the past six months, following Alphabet Inc.’s GOOGL decision to shelve its buyout plans. From Alphabet's perspective, acquiring HubSpot would not only have bolstered its presence in the burgeoning customer relationship management (CRM) software market but also provided a significant boost to its cloud computing business, intensifying competition with industry giants like Microsoft and Amazon. Additionally, the acquisition could have enhanced competition in the marketing and sales software sector, countering the dominance of players like Salesforce and Microsoft.

For HubSpot, an acquisition by Alphabet could have offered access to greater resources and technological capabilities, enabling it to further innovate and expand its market reach. However, with the news of the deal falling flat, HUBS’ shares have taken quite a beating. Nevertheless, HubSpot's flexible business model and solid cash flow could prove to be a game-changer in the long run. Earnings estimates for the current and next fiscal year have increased 9% and 5.1%, respectively, since May 2024. Let us delve a little deeper into the stock’s inherent growth potential.

HUBS’ Growth Drivers

HubSpot is increasingly focusing on collecting and enriching customers with extensive, unified data pulled from website visits, marketing e-mails, sales calls and more. The acquisition of Clearbit, a B2B data provider for marketing intelligence, has further accelerated its vision. The integration of Clearbit premier information pool with HubSpot AI will facilitate the development of more powerful, advanced and accurate AI capabilities.

HubSpot’s inbound marketing and sales applications enable businesses to easily reach, acquire and retain customers through traditional marketing tools like cold calls, print advertisements and e-mail. The company’s strategic priority is to deliver a world-class front-office platform by investing in anchor hubs and innovating new emerging hubs. The growing adoption of inbound applications has helped develop the marketing agency partner network. Management’s focus on integrating generative AI to drive innovation and add more value to customers is likely to reap long-term benefits. 

The company has significant scope in cross-selling its products to the existing customer base. The One HubSpot initiative is a key growth driver. In addition, HubSpot's App Marketplace offers a customer-centric solution by making it simple for companies to find and seamlessly connect the integrations to grow their businesses. As companies prioritize a digital-first approach, it is likely to create more opportunities for developers to build new integrations that support every stage of the customer journey.

Moving Forward

HubSpot primarily targets mid-market businesses, comprising companies with 10 to 2,000 employees. This market is mostly underpenetrated, which presents a significant growth opportunity for the company. Moreover, HubSpot is expanding its geographic footprint rapidly and currently has international offices in 12 different locations worldwide with a customer base in more than 120 countries. This augurs well for the long-term growth of the company.

It has a long-term earnings growth expectation of 18.4% and delivered an earnings surprise of 10.7%, on average, in the trailing four quarters.

HUBS Zacks Rank & Other Stocks to Consider

HubSpot currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

InterDigital, Inc. IDCC carries a Zacks Rank # 2 at present. It has a long-term growth expectation of 15%. InterDigital is a pioneer in advanced mobile technologies, enabling wireless communications and capabilities. The company designs and develops a whole range of advanced technology solutions for use in digital cellular as well as wireless 3G, 4G, and IEEE 802-related products and networks. InterDigital delivered a trailing four-quarter earnings surprise of 160.2%, on average.

Ubiquiti Inc. UI carries a Zacks Rank #2 at present. The company offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. Ubiquiti’s excellent global business model, which is flexible and adaptable to evolving changes in markets, helps it to beat challenges and maximize growth. The company’s effective management of its strong global network of more than 100 distributors and master resellers improved its visibility for future demand and inventory management techniques.

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This article originally published on Zacks Investment Research (zacks.com).

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