Summit Research’s Jonathan Kees sees HubSpot Inc HUBS as a “visionary” that has changed focus from outbound to inbound marketing and has delivered products based on its vision.
The analyst initiated coverage of the company with a Hold rating price target of $48.
“Disruptive” Marketing
“We like the company’s “disruptive” view on marketing, small-medium businesses segment leadership, competitive edge, and competitive standing,” Kees mentioned.
The analyst also believes that the company’s products are differentiated by their ease of implementation and use, as well as high customer satisfaction, given that they help firms work on prospective leads to turn them into customers.
Financials
However, Kees also pointed out that Hubspot was currently burning cash rather than being profitable, while facing financial commitments and off-balance sheet items worth $111 million by 2020.
On the other hand, the company has been working on improving its financials. Although there had been an uptick in growth in 2015, revenue growth is expected to slow down over the next few years, following the recent highs.
Kees expects the company to generate revenues of $253 million in CY16 in a market that is worth $5.8 billion.
Macro Concerns
“Though mgmt. has recently stated that they are not seeing the macro pause that others are experiencing, we believe that HUBS is not immune to macro issues,” the analyst pointed out.
Kees noted that marketing software was not mission critical for businesses, unlike network security and compliance software. Also, with gross margins in the mid-70 percent, near term expansion was unlikely.
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