HubSpot

We are discontinuing analyst coverage of HubSpot.

We will discontinue analyst coverage of HubSpot on or about Sept. 11. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Our fair value estimate for HubSpot is $300 per share, which implies a fiscal 2026 enterprise value/sales multiple of 3 times. We model a 13% compound annual growth rate for revenue over the next five years, driven overwhelmingly by subscription growth, cross-selling, and the introduction of new modules like operations hub and generative AI. We expect HubSpot’s non-GAAP operating margin to rise from 19% in 2025 (actual) to beyond 30% by 2030. We expect scale on all operating expense line items, notably research and development and sales and marketing. Our projections include cross-sells from new solutions like AI at existing clients, a growing mix of larger clients, new customers, and underlying markets that are growing in the 10% to 15% range.

We assign a narrow moat rating to HubSpot, driven by high customer switching costs. We believe switching costs have enabled HubSpot historically to generate returns on invested capital in excess of its cost of capital, and we think such excess returns will more likely than not continue for the next 10 years.

Switching costs for software are often driven by several factors, in our view. The more critical the function and the more touch points across an organization a software vendor has, the higher the switching costs. There is also the direct time and expense of implementing a new software package for the customer while maintaining the existing platform and re-training employees on a new system. Additionally, there is operational risk of changing software vendors, including business process re-engineering, loss of data during the changeover, and overall project execution. A major implementation is likely to involve a system integrator and can take in excess of a year in bad cases. Lastly, lost productivity is likely to be an issue as customers move up a learning curve on the new system, along with the distraction of users involved in the function where the change is occurring.

Retention metrics typically help inform investors on both the presence and the durability of a moat. These come in two flavors: gross, which describes what percentage of the customer base remains customers after a given period, and net, which highlights what percentage of the customer spending is retained by the software provider after a given period. HubSpot consistently generates gross customer retention in the 87% to 89% range, which, given its small and medium-size business client base, we think is good. The company also achieves net retention in the 100% to 110% range, which we view as good based on the small business focus and a freemium model.

HubSpot provides a suite of software solutions that help its customers grow “better.” Taken together, the suite is known as the growth platform, although most of these solutions are available on a stand-alone basis. Marketing Hub was the founding application and includes features that allow marketers to attract, engage, and foster new leads throughout the entire customer lifecycle. Service Hub allows users to connect with customers and manages those interactions. HubSpot CRM is the core of the platform and is a central repository for all customers. The company has also added additional modules over time, notably the Content Hub and Operations Hub. The company also offers services, which is typical of software companies and consists of education and training, as well as support, and does not contribute to HubSpot’s economic moat.

Given that these hubs provide mission-critical elements that entire businesses will rely on to operate, we think companies are reluctant to change to another vendor unless absolutely necessary. Acquiring new customers while retaining existing ones is the number one priority for businesses of all stripes. From the customer’s perspective, they expect to have a “consumer” feel and expect to provide information on the issue one time, with historical interactions providing context. This is especially true with Service Hub, which is directly used to interact with customers and resolve any issues they may experience. Together, these factors clearly suggest the existence of a moat to us.

In 2006, HubSpot launched its first solution, Marketing Hub (marketing automation), which helps users create web content, drive targeted traffic to specific web pages, convert visitors to customers, track customers, and report financial impact of marketing efforts. In 2014, the company launched its CRM and Sales Hub (salesforce automation), which enables users to automate personalized outreach, create email templates, create follow-up alerts and material, connect with prospects through live chat, collect data automatically, and track the pipeline from start to finish. Service Hub was launched in 2017 and helps companies connect with customers via chat, email, bots, and email, create tickets and automatically route issues, and track performance. Marketing Hub makes up the majority of ARR, followed by Sales Hub, then Service Hub.

HubSpot uses a freemium model, where a stripped down version of each of the three main hubs is available for free via download for customers. From the free version, which exists to create a large funnel and make onboarding as easy as possible, a three-tiered system emerges that includes Starter, Professional, and Enterprise. The CRM is always free, whereas the Content Hub is not available for free and can be packaged with a starter tier of any hub for a meaningful upcharge. Each tier offers an increasing array of features along with an increasing number of contacts available in the CRM. HubSpot believes its solutions are appropriate for companies with between two and 2,000 employees. Free versions might be adopted by a startup with just two employees, while as that company grows, it might move up the stack to eventually use the Enterprise version.

Given the product overlap with Salesforce, we look to data provided by Salesforce to help define the market. We see a $75 billion to $100 billion market growing in the low-double-digit percentage area, a portion of which would not likely be available to HubSpot yet, as it relates to the largest enterprise customers. On the competitive front, Salesforce is obviously a clear competitor, as is Zendesk in the Service area, Adobe (Marketo), Microsoft, Pegasystems, Oracle, SAP, and a variety of other privately held companies. We think realistically, these companies tend to skew higher end for larger customers, so they are not necessarily perfect competitors. This dynamic also leaves HubSpot in a strong position with a robust portfolio providing mission-critical solutions for an underserved niche.

HubSpot has made a splash in the SMB market with its freemium model, easier implementation, and simple and feature-rich software.

HubSpot does not have to beat out Salesforce or Microsoft, but by offering credible solutions in an expanding portfolio to the mid-market, we think it can grow rapidly in an underserved niche.

HubSpot’s record of introducing new solutions in adjacent areas, upselling existing customers, and moving customers up the stack as they grow has driven strong revenue growth thus far and seems likely to continue over the next several years.

Net dollar retention is low relative to other rapidly growing SaaS peers and even software more broadly. Given the SMB customer base, we do not see this easing over the next several years.

HubSpot is likely to face increasing competition from Salesforce and Adobe, along with AI, as it continues to refine its portfolio and go after larger customers.

HubSpot is executing across many areas at once, including launching new solutions and making acquisitions, and selling to increasingly larger customers so there is no shortage of risks to attend to for management.