HubSpot Neutral At Goldman On Slowing Customer Acquisition

Although HubSpot Inc HUBS seems poised for sustained growth and margin expansion, the stock appears fairly valued, given decelerating gross customer additions in the company’s marketing business and the relatively small size of the sales business, Goldman Sachs’ Jesse Hulsing said in a report. He initiated coverage of HubSpot with a Neutral rating and a 12-month price target of $57.

The price target implies 1 percent downside risk versus the GS coverage group average of 3 percent upside, analyst Hulsing noted.

Growth Drivers

“HUBS has steadily moved down the marketing funnel, expanding from content management to marketing automation and, more recently, to salesforce automation,” Hulsing wrote. He added that HubSpot’s integrated approach to SMB CRM would likely result in continued share gains and estimated a 35 percent subscription revenue CAGR through FY18.

Slowing Growth

The company’s marketing business is expected to have recorded 8 percent y/y growth in gross customer adds in the first half 2016, representing a massive slowdown from the 35 percent y/y growth reported in the same period in 2015.

Given the slowdown in gross adds growth, incremental growth would need to be generated from sales and upselling or cross-selling within the marketing base, the analyst stated. The sales business is still small, contributing only 4 percent of ARR as of Q2.

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