Kerrisdale Capital Shorts HubSpot, Says Company 'In A Tough Spot'

HubSpot Inc HUBS shares traded lower on Wednesday after short seller Kerrisdale Capital released a new bearish report on the stock.

The Thesis: Kerrisdale said it has a short position in HubSpot and claims the company has little chance of continuing its pandemic-era growth in the future.

“HubSpot faces difficult challenges as it enters a risky, uncertain new phase of its existence, in which the COVID tailwind will fade and future growth will depend on expansion into already crowded markets,” Kerrisdale wrote.

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“Even if HubSpot’s revenue continues to grow, the company has never really proven that it has a viable long-term business model, keeping itself alive only by selling shares and convertible bonds to investors and by handing out piles of stock to its employees, the cost of which it conveniently excludes from its preferred non-GAAP earnings metrics,” Kerrisdale added.

The Numbers: Kerrisdale said even if the company eventually achieves its long-term goal of at least 20% non-GAAP operating margins, Hubspot's true operating margin would still be a relatively thin 9%. Kerrisdale pointed to the company’s high management turnover and insider stock sales as potential signs company insiders know HubSpot has a risky outlook.

Finally, Kerrisdale questioned the company’s valuation, pointing out the stock trades at around 20 times forward sales estimates, a steep premium to peers Squarespace Inc SQSP and Wix.Com Ltd WIX, each of which trade at under six times forward sales.

Benzinga’s Take: The relatively modest drop in HubSpot shares on Wednesday suggests investors are at least initially not taking Kerrisdale’s bear thesis very seriously.

Hubspot was trading at 672.34, down 1.16% on Wednesday afternoon.

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