By this point, Artificial Intelligence (AI) has moved far beyond a novelty, and is now embedded in almost everything we as customers engage with. For HubSpot (HUBS), this is, in equal measure, a challenge and an opportunity. As a giant of the Customer Relationship Management (CRM) world, it’s no surprise to see it lean heavily into this new technology, but as investors price in enormous potential, anything less than perfection could be problematic going forward.
I’m bullish on the company’s prospects, but external variables could prove to be an issue for investors, and there could be plenty of volatility along the way. Assuming the company maintains its smooth growth trajectory, prospects for the stock reaching its $1,000 long-term price target become all the more likely.
HubSpot’s Evolution
Many will be familiar with the company but might be surprised to learn it’s only been around since 2005. Over the last twenty years, it has helped to build a substantial customer platform, initially focusing on marketing automation but also supporting content management, ticketing for IT issues, commerce, and more.
Of course, this is not a unique concept, with market titans such as Salesforce (CRM) offering an enormous suite of products. However, HubSpot aims to capture the sweet spot by offering personalised, specific functionality without the larger firms’ complexity and enterprise-level pricing.
With an early 250,000 customers, this niche is becoming a sizeable market in its own right, generating recurring subscription revenue, customer loyalty, and, most notably, impressive margins.
HubSpot’s Big AI Bet
Management has been pretty clear to investors that AI is not just a bolt-on; it’s now at the core of CRM going forward. Many firms use it in a few areas, and HubSpot appears to be using it everywhere, with AI-powered service bots, content assistants, and lead scoring predictions.
Naturally, much of this is in early stages, but it seems to resonate with customers. The Content Hub saw adoption rates soar from 13% to 54% in a year. This is also seen in the huge rise in Service Hubs over the last year, as customers look to build comprehensive portals rather than single AI solutions.
Some analysts will note that this rollout hasn’t all been smooth sailing, with foreign exchange trimming Q4 billings by about 5% and the latest earnings call plagued with technical difficulties. But cutting through the noise and short-term turbulence, nearly 10,000 new customers, and strong adoption rates of new features will encourage many investors.
Encouraging Signs for HUBS in Q4 2024
I like most of what I see in the latest earnings report, with management taking an ongoing approach to bundle tools into a single interface. This builds users’ confidence in new products and ensures a stable income. I can see the results of this coming through in the numbers, with free cash flow notably up in the last quarter, over 96% higher.
With operating margins now at 19% and pretty much no debt on the books, the future looks fairly solid if management can keep up the trend. While many companies will grow faster, this sort of discipline is compelling for investors. At the same time, building partnerships, improving efficiency, and investing in R&D along the way shows a fairly mature approach to long-term growth.
Looking forward, HubSpot is set to report its Q1 2025 figures tomorrow.
Is HubSpot Stock a Buy?
On Wall Street, HUBS stock carries a Strong Buy consensus rating based on 25 Buy, four Hold, and zero Sell ratings over the past three months. HUBS’ average price target of $773.50 implies approximately 22% upside potential over the next twelve months.
Risks Remain as HubSpot Competitors Advance
HubSpot is far from alone in the sector. Most companies are looking to adopt AI in some form, but Microsoft and Salesforce dominate the CRM arena with their own slick, bundled suites. At the other end of the cost spectrum, innovative newcomers are quickly building products that can attract new customers, putting HubSpot in a tricky position going forward.
There is still plenty of market share to compete for, but with geopolitical tensions rising alongside tariff uncertainty, expanding into the global market is far from risk-free. Any continued or escalating tension could meaningfully impact the company’s and the economy’s performance.
The main concern from my perspective is the price. An investment is only as good as the price it’s bought at, and right now, the share price is far from cheap. While many analysts expect to see 20% growth rates over the coming years, it might not be enough alongside margin expansion and further developments in AI. A discounted cash flow calculation using these values puts the fair price at about the $700-750 range, which may not be enough to impress investors, especially when considering this value would more or less demand perfect execution over the next three years.
HubSpot’s Lofty Expectations
For now, I think HubSpot is doing all of the right things. It’s moving quickly in a dynamic sector, is staying disciplined with costs, and has a clear strategy going forward. With plenty of companies looking to build out AI CRM without going for the gold standard, HubSpot could be a compelling balance.
However, with plenty of expectation now baked into the share price, investors will need to see results. While this is far from guaranteed, I see plenty of strength in the company looking ahead and will be taking a cautiously bullish approach.