HubSpot Is A Marketing Software Leader; DA Davidson Initiates With Buy

HubSpot Inc HUBS is creating a “compounding, recurring revenue model,” DA Davidson’s Jack Andrews said in a report. He initiated coverage of the company with a Buy rating and a price target of $76.

HubSpot is focusing on the small and medium business market, an arena that software companies have historically not been able to succeed in. “We believe HUBS has been able to solve this challenge in two unique ways: through inbound marketing and an integrated platform,” analyst Andrews explained.

Marketing Software Opportunity

Andrews believes that the marketing software opportunity is “both large and nascent.” The market combines some CRM elements with that of business intelligence, and together account for nearly $45 billion in technology spend.

“By number of customers, we believe HubSpot’s market may be one percent penetrated. The greenfield nature of this market makes it attractive, in contrast to other application software markets that are well-established with large entrenched competitors,” the analyst wrote.

HubSpot is expected to generate FY2016 revenue of $266.2 million, representing 46 percent y/y growth, and a non-GAAP EPS loss of $0.49. With robust revenue growth, the company is approaching FCF breakeven, Andrews mentioned.

“HubSpot’s stock price is highly correlated to the overall macro investor sentiment for high-growth technology stocks. Thus, in our view, shareholders of HUBS are making a bet on the overall macro environment, whether they realize it or not,” the analyst added.

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