Which MarTech Startups Will HubSpot Acquire Next?

A Technavio report published earlier last year estimates the global cloud-based marketing platform market to grow 9% annually over the period 2017 to 2021. The market is dominated by big players like Adobe Systems, Oracle, Salesforce, and IBM. But there are a few other vendors like Billion Dollar Unicorn HubSpot (NYSE:HUBS) that are doing very well in the industry.

HubSpot’s Financials

Cambridge, Massachusetts-based HubSpot was founded in 2006 by MIT graduate students Brian Halligan and Dharmesh Shah to provide an all-in-one inbound marketing software platform for small- and medium-sized businesses. The company focused on inbound marketing and developed a platform that could centralize marketing automation and search engine optimization (SEO) tools.

HubSpot operates on a freemium model. Its CRM service is available to the organizations for free forever. The basic Marketing service is also available for free while premium options range from $50 per month to $2,400 per month. The additional features offered in these plans include services like customized form fields, blog, SEO and content creation tools, event-based segmentation, and detailed analytics, to name a few. It also offers a sales platform that is priced between $50 a month for a single user to $400 users a month for a professional edition for minimum five users. The premium sales platform offers services such as sales automation capabilities, predictive lead scoring, smart send times, and salesforce integration.

HubSpot has seen strong revenue growth for its services. For the recently reported fourth quarter, revenues increased 39% over the year to $106.5 million, compared with the market estimates of $101 million. Adjusted EPS came in at $0.12, which was also better than the market’s forecast EPS of $0.07 for the quarter.

By segment, Subscription revenues grew 40% to $101.7 million and professional services and other revenues increased 20% to $4.8 million.

Among operating metrics, total customers grew 48% to 41,593 at the end of the fiscal year. Total average subscription revenue per customer for the company was $10,255 for the quarter.

HubSpot ended the year with revenues growing 39% to $375.6 million. Non GAAP net income came in at $9.8 million or $0.27 per share compared with a loss of $12.8 million or $0.36 per share a year ago.

For the current quarter, HubSpot expects revenues of $109.2-$110.2 million with an EPS of $0.10-$0.12. The market was estimating revenues of $107 million with an EPS of $0.08 for the quarter. It expects to end the year with revenues of $481-$485 million with an EPS of $0.51-$0.59. The Street had forecast revenues of $472.9 million for the year with an EPS of $0.44.

HubSpot’s Europe Expansion Plan

HubSpot is looking to grow its international footprint, especially in the European markets. As part of the move, it opened a new office in Berlin last year. It also expanded its partnership with Google and announced expansion of its partnership with Google by adopting Google Cloud to grow its international cloud infrastructure. HubSpot will leverage the Google Cloud Platform Frankfurt region to support local customer data, and provide outage and data protection as needed. Its use of Google Cloud Platform in Europe will drive better speed, reliability, and security to its international customers. Additionally, HubSpot expects to reduce costs through the adoption of Google Cloud and will look to invest in improving Google Cloud product integrations.

HubSpot’s Acquisitions

HubSpot realizes the importance of AI and machine learning within the marketing world. Last year, it announced the acquisition of Motion AI, a leading visual Chatbot builder. Naperville, Illinois-based Motion AI was founded in 2015 by David Nelson to offer an editor for building chatbots that work on websites, Facebook Messenger, SMS, and Slack. Prior to the acquisition, HubSpot was already working with Motion AI by integrating its chatbot into its Free CRM offering. Motion AI had raised funding of $700,000 from investors including Crush Ventures, Charge Ventures, and Hyde Park Angels. Its valuation prior to the acquisition or at the time of the acquisition are not known. Post the acquisition, HubSpot plans to integrate Motion AI’s product into the HubSpot platform to build tools to automate important tasks, scale conversations, and proactively engage and acquire new customers.

Earlier in the year, HubSpot had also announced the acquisition of sales AI startup Kemvi for an undisclosed valuation. San Francisco-based Kemvi was founded in 2014 by Marco Lagi and Vedant Misra. Kemvi applies AI and machine learning tools to help sales teams. It was known for its DeepGraph product that analyzes public data to help salespeople identify the best time to reach out to potential customers. Prior to the acquisition, Kemvi had raised $1 million from unidentified investors at an undisclosed valuation. HubSpot is leveraging Kemvi’s capabilities in HubSpot CRM to give salespeople more tools to carry out more contextual, empathetic outreach to their contacts.

Questions for HubSpot’s Board

HubSpot appears to be taking the right measures to drive growth. It is evident in its improving financials and rising valuation. HubSpot is also not shying away from making small scale acquisitions. I would like to know if it is looking at companies in regions such as India to add to its portfolio. There are a lot of CRM / MarTech tools in the Indian market, including some in our portfolio, that may be worth considering, as the unprecedented level of startup activity in MarTech continues unabated. [link]

Till October 2014, HubSpot was venture funded. It had raised $100.5 million in funding from investors including CRV, Altimeter Capital, Cross Creek Advisors, Dharmesh Shah, General Catalyst Partners, Brian Shin, Mike Volpe, Matrix Partners, Scale Venture Partners, Sequoia Capital, Google Ventures, and Salesforce.com. HubSpot raised $125 million through the listing at a valuation of $759 million.

Its stock is currently trading at $115.10 with a market capitalization of $4.2 billion. It had touched a 52-week high of $124.45 in March last year. It has been climbing from the 52-week low of $60.90 that it was trading at in April last year.

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