HubSpot Shares Win A New Bull, BTIG

BTIG’s Abhinav Kapur believes HubSpot Inc HUBS “is at a crossroads as it integrates its freemium CRM and Sales products with its “traditional-lite” approach.”

The analyst upgraded the rating on the company from Neutral to Buy, with a price target of $73.

The Evolution

Kapur explained that subscription software distribution is bifurcated at present, with the traditional model on the one hand where there is “high-tough” sales force and long deal cycles, which are usually offset by the high contract values.

On the other hand, there is “consumerization of IT,” where internet-enabled product distribution occurs with a pricing model that allows users to download a free version and then convert to a paying format after adequate testing.

“There are obviously puts and takes to both, but what jumps out is the lack of public software vendors pursuing this latter approach,” Kapur stated.

This is where HubSpot fits in, although the company has usually worked with a “stripped-down” version of the traditional model for its core marketing software.

Model Transition

With the transition to a freemium model, the analyst said HubSpot was a “fascinating test case in how the freemium model can impact a public company, and also a lens to better understand the next crop of likely public companies, including Slack, Dropbox, Hootsuite, Evernote, and Docker.”

Kapur also believes this move could act as a catalyst for the stock, while greater revenue retention combined with lower customer acquisition costs is expected to drive significantly stronger margins and cash flow as compared to the current consensus expectations.

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