HubSpot Q3 2024 Earnings Analysis
Dive into $HUBS HubSpot’s Q3 2024 earnings with review of financial performance, key metrics, operating expenses, dilution, customer growth, future outlook
Financial Results:
↗️$669.7M rev (+20.1% YoY, +20.4% LQ) beat est by 3.5%
↗️GM (85.2%, +0.9 PPs YoY)🟢
↗️Operating Margin* (18.7%, +2.5 PPs YoY)🟢
↗️FCF Margin (19.3%, +7.7 PPs YoY)🟢
↗️EPS* $2.18 beat est by 14.1%🟢
*non-GAAP
Subscription
➡️$654.7M Subscription rev (+20.0% YoY); 97.8% of Rev🟡
↗️GM* (88.3%, +1.1pp YoY)🟢
Key Metrics
↗️Deferred Revenue $723.83M (+24.3% YoY)
↗️RPO $939.70M (+36.8% YoY)🟢
↗️Billings $681M (+23.9% YoY)🟢
↘️Average Rev Per Customer $11,235 (-2.5% YoY)
Customers
➡️238,128 customers (+22.7% YoY, +10074)
Operating expenses
↘️S&M*/Revenue 40.8% (-1.4 PPs YoY)
↘️R&D*/Revenue 19.1% (-0.2 PPs YoY)
↗️G&A*/Revenue 8.0% (+0.4 PPs YoY)
Quarterly Performance Highlights
↗️Net New ARR $124M (+10.0% YoY)
↘️CAC* Payback Period 27.9 Months (-0.7 YoY)🟢
↘️R&D* Index (RDI) 1.05 (-0.27 YoY)🟡
Dilution
↘️SBC/rev 19%, -0.8 PPs QoQ
↘️Basic shares up 2.6% YoY, -0.0 PPs QoQ
↘️Diluted shares up 1.7% YoY, -0.8 PPs QoQ
Guidance
↗️Q4'24 $672.0 - $674.0M guide (+15.7% YoY) beat est by 0.5%
↗️$2,597.0 - $2,599.0M FY guide (+19.7% YoY) raised by 1.0% beat est by 1.1%
Key points from HubSpot’s Third Quarter 2024 Earnings Call:
Financial Performance
HubSpot’s Q3 2024 financial performance reflected robust year-over-year growth, with revenue increasing by 20% in both constant currency and as reported. Subscription revenue, which makes up the majority of the company’s income, also grew by 20%, while services revenue expanded by 28%. Average subscription revenue per customer (ASRPC) was $11,200, representing a 2% decline year-over-year due to a higher volume of new customers entering at lower price points. Despite lower initial average selling prices, larger multi-hub deals and upmarket wins helped offset this, leading to mid-single-digit growth in ASRPC when excluding starter-tier customers.
Operating margin for the quarter increased by 200 basis points to 19%, showcasing cost management efficiency. Free cash flow was $129 million, or 19% of revenue, highlighting HubSpot’s efforts to optimize its go-to-market and product infrastructure.
Product Innovations and AI-Driven Growth
In Q3 2024, HubSpot introduced significant product innovations, especially through its "Breeze" platform, which integrates AI-powered tools like CoPilot and specialized AI agents. These tools provide functionalities such as CRM data summarization, content generation, and customer insights. CoPilot achieved repeat usage from 43% of users, underscoring its immediate value in data management and content creation.
Content Hub and Service Hub Enhancements
Content Hub’s integration of AI-driven features has accelerated its growth, achieving a 50% attach rate to Marketing Hub. Service Hub has seen improvements aimed at midmarket and upmarket adoption, including a customer success workspace, advanced ticket management, and SLA tracking. The enhancements in both hubs align with HubSpot’s strategy of delivering high-value product experiences that drive productivity and efficiency for customers.
Commerce Hub and Cash Flow Acquisition
HubSpot’s Commerce Hub processed over $1 billion in GMV in Q3, supported by growing customer enrollment rates. The recent acquisition of Cash Flow has introduced advanced subscription management and CPQ (configure, price, quote) capabilities, allowing businesses to streamline and unify customer and transaction data. This acquisition strengthens HubSpot's position by offering a comprehensive approach to sales and purchasing management, which aligns with the company’s strategy of providing seamless customer experiences.
Customer Growth and Engagement
HubSpot expanded its global customer base to 238,000 in Q3, with over 10,000 net new customers, marking a 23% year-over-year increase. The company’s seat-based pricing model, which lowers entry barriers for new customers, supported this growth and facilitated scalable upgrades. HubSpot’s customer retention rate remains high, consistently in the high 80% range, indicating steady engagement across its customer base.
Large Customer Wins and Multi-Hub Adoption
HubSpot continues to see strong adoption among larger customers, especially in the upmarket segment. Over 50% of new Pro Plus business involved customers adopting three or more hubs, a trend that underscores the value of HubSpot’s multi-hub strategy. HubSpot’s strengths in ease of use, fast time to value, and competitive total cost of ownership are critical factors in attracting larger, scaling organizations.
Customer Success Stories
Several customer success stories reflect the effectiveness of HubSpot’s AI-driven tools. For instance, Franchise Brokers Association used Content Hub’s AI features to increase content production by 250% and improve organic lead generation by 216%. Kaplan Early Learning Company reduced ticket response times by 30% using the customer service agent, enhancing team productivity. Morehouse College used the content agent to increase blog engagement, reporting a 30% rise in page views and 27% more time spent on-site.
Future Outlook
HubSpot’s Q4 guidance projects revenue between $672 million and $674 million, a 16% year-over-year growth rate at the midpoint. For the full year, revenue guidance is expected between $2.597 billion and $2.599 billion, reflecting 20% growth. HubSpot remains focused on executing a robust pipeline, particularly as it enters the high-sales period in December. The company anticipates its seat-based pricing model and multi-hub strategy will continue to drive net revenue retention, supporting its potential for sustainable, long-term growth.
HubSpot’s commitment to AI innovation—evident through the Breeze platform—is expected to further engage and retain customers as AI capabilities are embedded across all hubs. These developments align with HubSpot’s intention to lead in integrated solutions for scaling businesses.
Management comments on the earnings call.
Product Innovations
Yamini Rangan, Chief Executive Officer
“Product innovation is central to our growth strategy, and this quarter was no exception. The new AI-powered tools in our Breeze platform, including CoPilot and specialized AI agents, are driving immediate value in CRM data management and content creation. We’re committed to embedding AI into every hub, enhancing productivity and delivering rapid time-to-value for our users.”
Platform
Dharmesh Shah, Co-Founder and Chief Technology Officer
“Our platform approach is what truly sets us apart. By creating a unified system where customer and transaction data coalesce, we enable a seamless, efficient experience that reduces friction in both sales and support. This unified platform not only simplifies scaling but is also designed to accommodate future innovation across hubs as our customers grow.”
AI
Yamini Rangan, Chief Executive Officer
“AI is transformative for our customers and our business alike. With the Breeze platform, we’re not just introducing AI tools; we’re integrating intelligent automation across every touchpoint in the customer journey. From data summarization to personalized content, our AI solutions are helping customers engage more effectively and operate more efficiently.”
International Growth
Kate Bueker, Chief Financial Officer
“Our international markets now represent 47% of total revenue, which reinforces the relevance of our solutions globally. The demand for our unified customer platform continues to grow as businesses across regions seek integrated, efficient solutions. We’re committed to supporting this international expansion with robust product innovation and localized services.”
Customers
Yamini Rangan, Chief Executive Officer
“Our customer success stories are a testament to the tangible impact of our solutions. When organizations like Kaplan Early Learning and Morehouse College use our AI agents to reduce ticket response times and increase content engagement, it validates the unique value of our product innovations. We’re inspired by how customers are using our platform to drive real results.”
Challenges
Kate Bueker, Chief Financial Officer
“We recognize the ongoing value-conscious buying environment and have factored it into our outlook. Our emphasis on delivering high value at every price point has kept retention rates high, but we’re navigating these pressures carefully, especially as we plan for further scale in complex, competitive markets.”
Future Outlook
Yamini Rangan, Chief Executive Officer
“Our focus is clear: execute our robust pipeline in Q4 and continue the momentum in multi-hub adoption and AI innovation. With the anticipated revenue growth and consistent customer engagement, we’re well-positioned for sustainable, long-term growth. As we enter a strong sales period, our attention remains on delivering value and driving efficiency across our unified platform.”