HubSpot Q1 2024 Earnings Review
$HUBS Q1'24 Results:
Financial Results:
↗️$617.4M rev (+23.1% YoY, +23.9% LQ) beat est by 3.3%
↗️GM (84.6%, +0.6%pp YoY)
↗️Operating Margin* (15.0%, +1.2%pp YoY)
↘️FCF Margin (16.8%, -0.2%pp YoY)
↗️EPS* $1.68 beat est by 12.0%
*non-GAAP
Subscription
↗️$603.8M Subscription rev (+23.3% YoY); 97.8% of Rev
↗️GM* (87.8%, +0.7%pp YoY)🟢
Key Metrics
➡️Deferred Revenue $701.79B (+22.0% YoY)🟡
➡️Billings $641,248M (+20.0% YoY)🟡
↗️Average Rev Per Customer $11,447M (+1% YoY)
Customers
↗️216,840 customers (+22.0% YoY, +11749)
Operating expenses
↗️S&M*/Revenue 42.9% (39.3% LQ)
↘️R&D*/Revenue 20.1% (21.6% LQ)
↘️G&A*/Revenue 7.9% (8.0% LQ)
↗️Net New ARR $134,292M ($97,572 LQ)
↘️CAC* Payback Period 22.8 Months (34.3 LQ)
Dilution
↘️SBC/rev 18%, -1.5%pp QoQ
↘️Basic shares up 2.6% YoY, -0.6%pp QoQ
↗️Diluted shares up 3.2% YoY, +0.2%pp QoQ
Guidance
↘️Q2'24 $617.0 - $619.0M guide (+16.8% YoY) missed est by -0.9%🔴
↘️$2,550.0 - $2,560.0M FY guide (+17.7% YoY) missed est by -0.4%🔴
Key points from HubSpot’s First Quarter 2024 Earnings Call:
Product Launches
Content Hub: HubSpot is transforming its CMS Hub into the Content Hub, now powered by AI to enhance content creation and management across the entire customer journey.
Key features include:
AI Content Creation: Facilitates the creation of multilingual content, helping businesses reach a broader audience.
Content Remix: Allows for the efficient generation of a full pipeline of content based on a single asset, maximizing content utilization.
Brand Voice: Ensures consistency across content, enabling businesses to maintain a uniform brand voice across all communications.
Service Hub: The re-launch of Service Hub aims to integrate customer support and customer success more effectively, focusing on both support management and customer retention:
Advanced SLAs and Robust Routing: Enhances the management capabilities within customer support.
Customers
Growth in Customer Base: HubSpot saw a significant increase in its customer base, growing by 22% year-over-year, with a total of over 215,000 customers globally. This growth was driven by more than 11,700 net customer additions in the quarter.
Adoption Across Segments: Both lower and upper market segments showed robust growth. The lower segment benefited from free users upgrading to starter plans and optimizations in pricing, including changes to the seats model. The upper segment saw strong performance in the Sales Hub and Multi-Hub as customers consolidated their operations around HubSpot's platform.
Macro Environment
Return to Cautious Spending: After a strong Q4 2023, Q1 2024 saw a return to more cautious spending behaviors similar to those observed in 2023.
Shift in Lead Quality: There was a noticeable shift from higher-quality inbound and partner-sourced leads to lower-quality, rep-sourced leads, which slowed down deal progression and extended sales cycles.
Future Outlook
HubSpot implemented a new pricing strategy based on seats to reduce entry barriers and friction for upgrades from starter to professional editions. This strategy aims to acquire more customers by allowing them to start small and scale as needed.
Challenges
Pressure on Upgrades and Retention: Despite high customer retention rates, there was noticeable pressure on upgrade rates during the quarter. This pressure is attributed to the macroeconomic environment and initial challenges in adopting the new seats pricing model.
Economic Headwinds: Persistent economic uncertainty and cautious enterprise spending behavior are expected to continue throughout 2024. HubSpot's guidance assumes these conditions will persist, impacting customer decision-making and budget allocations.
Management comments on the earnings call.
New Products
Yamini Rangan, CEO: "We’re thrilled to see the continued momentum in Sales Hub and Multi-Hub, and it’s a clear validation that our strategy of going from app to suite to customer platform is working."
Macro Environment
Yamini Rangan, CEO: "After a strong finish in Q4, we saw a return to weaker demand conditions in the first quarter, similar to what we experienced in 2023. The buyer urgency that we saw in December did not carry over into Q1."
Challenges
Yamini Rangan, CEO: "In early March, we introduced a pricing change based on seats to lower the price point to get started with HubSpot and remove the pricing friction for customers to upgrade from starter to professional edition. While we continue to be very excited about the model change for our customers on HubSpot, the timing and speed of the change caused a negative impact on our business in March that will likely persist for a couple of months."