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HubSpot Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company's customer base expanded to 248,000 customers globally with over 9,800 net customer additions in Q4.
- Over 35% of Pro+ customers by ARR now use four or more hubs, up 7% YoY.
- The company's partner ecosystem is driving success with Co-selling increasing by 68% YoY.
- The company's operating margin was 19% in Q4 and 17.5% for the full year, both up 2 points compared to the year-ago period.
- The company has grown the user base of Agent.ai over 10x in six months from 50,000 users of inbound to over 500,000 users and empowered over 5,000 builders to create agents with its low code tool.
- Average subscription revenue per customer was $11,300 in Q4, down 1% YoY in constant currency and roughly flat on an as-reported basis.
- The company expects a little over a point headwind to operating profit margin in Q1 due to an increase in the company match rate of 401(1) contributions.
- The company expects to see a seasonal downtick in net revenue retention in Q1.
- The company expects a step down in its constant currency growth rate in Q1.
- Non-GAAP diluted net income per share is expected to be between $1.74 and $1.76.
- The company expects a step down in the constant currency growth rate in Q1.
- The company expects a little over 1 point headwind to operating profit margin in Q1 due to an increase in the company match rate of 401(k) contributions.
- The company expects a seasonal downtick in net revenue retention in Q1.
- The company expects a continued strong foundation of product usage and customer retention.
Q&A Highlights from HubSpot Inc Earnings Call Q4 2024
- Analyst asked about how customer conversations have evolved on pricing and measuring ROI now that customers have had Breeze in their hands, and if the company sees the path to monetization shifting.
- The company has gained momentum from an AI perspective and is focused on delivering value with its agents. The company's monetization strategy is to drive customer acquisition and expansion across the entire platform with AI. The company believes that the future of pricing for AI will be hybrid, with both seat-based and usage-based pricing. The company is focused on delivering value first before adding on to its seat-based model and then monetizing based on usage.
- The company has gained momentum from an AI perspective and is focused on delivering value with its agents. The company's monetization strategy is to drive customer acquisition and expansion across the entire platform with AI. The company believes that the future of pricing for AI will be hybrid, with both seat-based and usage-based pricing. The company is focused on delivering value first before adding on to its seat-based model and then monetizing based on usage.
- Analyst asked about the impact of AI monetization on the company's 2025 revenue forecast.
- The company has not assumed any direct agent monetization in its 2025 guidance. However, the company is focused on AI and sees customers increasingly considering AI in their decision-making. The company is seeing strong momentum and customer conversations related to AI features and functionality in Content Hub, Sales Hub, and Service Hub. The company assumes that this momentum will continue through 2025.
- The company has not assumed any direct agent monetization in its 2025 guidance. However, the company is focused on AI and sees customers increasingly considering AI in their decision-making. The company is seeing strong momentum and customer conversations related to AI features and functionality in Content Hub, Sales Hub, and Service Hub. The company assumes that this momentum will continue through 2025.
- Analyst asked about the company's observation on downgrades and churn stabilizing and if there has been any improvement in the value-oriented mode amongst SMBs.
- Net revenue retention was up 2 points sequentially to 104%, with the biggest driver being seat upgrades. The company has seen a stabilization and easing of the downgrade motion, but the remaining headwind is upgrades, other upgrades. The company has seen some improvements in the sentiment externally, but people are still value-driven, and it will take a big change in the external environment for that other upgrade motion to move.
- Net revenue retention was up 2 points sequentially to 104%, with the biggest driver being seat upgrades. The company has seen a stabilization and easing of the downgrade motion, but the remaining headwind is upgrades, other upgrades. The company has seen some improvements in the sentiment externally, but people are still value-driven, and it will take a big change in the external environment for that other upgrade motion to move.
- Analyst asked about how to think about the guide as it relates to new customer acquisitions over the year relative to ARPC growth, and if there is a potential change in the way to think about these metrics.
- The company was happy with the net adds coming in at 9,800, which is at the upper end of the 9,000 to 10,000 range. The company has seen variability quarter-over-quarter in net additions, but they expect this range to be the right zone for the next couple of quarters. The company has seen a balanced mix of the new customer profile across the Starter tier and the Professional and Enterprise tier, which is what they expected post the seats model introduction. The company expects net adds in the 9,000 to 10,000 range for 2025, with a higher mix of Professional, Enterprise. ASRPC should stabilize in the near term and then grow in the back half of the year at a low single-digit rate.
- The company was happy with the net adds coming in at 9,800, which is at the upper end of the 9,000 to 10,000 range. The company has seen variability quarter-over-quarter in net additions, but they expect this range to be the right zone for the next couple of quarters. The company has seen a balanced mix of the new customer profile across the Starter tier and the Professional and Enterprise tier, which is what they expected post the seats model introduction. The company expects net adds in the 9,000 to 10,000 range for 2025, with a higher mix of Professional, Enterprise. ASRPC should stabilize in the near term and then grow in the back half of the year at a low single-digit rate.
- Analyst asked about the control tower for all these agents in an agentic world, where every app in the stack brings its own version.
- Dharmesh Shah, co-founder and CTO of HubSpot, explained that composability is a crucial factor for agents to collaborate and work together to accomplish higher-order goals. He stated that HubSpot is building the agent.ai network to become the control tower for these agents, enabling builders to build on the platform and reach hundreds of thousands of people. He also mentioned that HubSpot has seen significant growth in the number of users and builders on the platform, with over 900,000 users and 7,000 builders.
- Dharmesh Shah, co-founder and CTO of HubSpot, explained that composability is a crucial factor for agents to collaborate and work together to accomplish higher-order goals. He stated that HubSpot is building the agent.ai network to become the control tower for these agents, enabling builders to build on the platform and reach hundreds of thousands of people. He also mentioned that HubSpot has seen significant growth in the number of users and builders on the platform, with over 900,000 users and 7,000 builders.
- Analyst asked about the impact of AI on HubSpot's expense growth and where the company might redeploy any savings.
- Yamini Rangan, CMO of HubSpot, answered that the company is broadly adopting AI internally and investing in R&D and go-to-market capacity. They plan to reinvest in innovation and capacity to drive growth for the long term. Kathryn Bueker, CFO of HubSpot, added that the company will continue to invest in R&D and capacity to drive innovation and growth.
- Yamini Rangan, CMO of HubSpot, answered that the company is broadly adopting AI internally and investing in R&D and go-to-market capacity. They plan to reinvest in innovation and capacity to drive growth for the long term. Kathryn Bueker, CFO of HubSpot, added that the company will continue to invest in R&D and capacity to drive innovation and growth.
- Analyst asked about the company's approach to turning on the consumption piece of the pricing model for agents and AI, and how they plan to map statistics on productivity to pricing increases.
- Yamini Rangan explained that the company's pricing approach has consistently been to innovate extensively, introduce innovation to customers, and then drive monetization. They have been making progress in increasing awareness and adoption of AI within their platform, and are currently focusing on making it easy for customers to adopt AI features within the product. They plan to add a monetization component for agents when they see repeat usage and value from them.
- Yamini Rangan explained that the company's pricing approach has consistently been to innovate extensively, introduce innovation to customers, and then drive monetization. They have been making progress in increasing awareness and adoption of AI within their platform, and are currently focusing on making it easy for customers to adopt AI features within the product. They plan to add a monetization component for agents when they see repeat usage and value from them.
- Analyst asked about the investor community's anxiety level around the evolution of DIY AI and software agents and agentic versus packaged software.
- Dharmesh Shah responded that mega-corporations may take a DIY approach, but SMBs prefer ease of adoption, fast time to value, and a unified platform. He envisions a new generation of software companies building on top of a common core platform like HubSpot's, and SMBs wanting a core platform with a wide range of agents tailored to their industry and business.
- Dharmesh Shah responded that mega-corporations may take a DIY approach, but SMBs prefer ease of adoption, fast time to value, and a unified platform. He envisions a new generation of software companies building on top of a common core platform like HubSpot's, and SMBs wanting a core platform with a wide range of agents tailored to their industry and business.
- Analyst asked about the mix of channel touch business and the commonality that drove the strength of channel partners.
- The company has been working with its partner ecosystem for multiple years, focusing on sourcing, co-selling, and servicing partners as experts in the field. They have helped partners go from marketing agencies to CRM implementers and have focused on upmarket joint customer pursuits. The company's product has gotten better, and they have enabled both their sales teams and the partner ecosystem to understand the full benefit of multi-hub adoption. This has led to more multi-hub deals and implementations upmarket with customers. The company sees an even bigger opportunity as an AI-first ecosystem ahead.
- The company has been working with its partner ecosystem for multiple years, focusing on sourcing, co-selling, and servicing partners as experts in the field. They have helped partners go from marketing agencies to CRM implementers and have focused on upmarket joint customer pursuits. The company's product has gotten better, and they have enabled both their sales teams and the partner ecosystem to understand the full benefit of multi-hub adoption. This has led to more multi-hub deals and implementations upmarket with customers. The company sees an even bigger opportunity as an AI-first ecosystem ahead.
- Analyst asked about the early work HubSpot is doing in unlocking new use cases for generative AI and how this affects the company's architecture.
- HubSpot's recent acquisition of Frame has enabled them to unlock new use cases for generative AI, such as getting better insights from unstructured data. The company believes that this is just the beginning of a bigger breakthrough, as they are working to bring structured and unstructured data together and build a knowledge layer on top of that data fabric. They are also building an orchestration layer to get feedback daily and learn from customer usage. The company is excited about the potential of this new architecture and believes it will unlock many new opportunities for their customers.
- HubSpot's recent acquisition of Frame has enabled them to unlock new use cases for generative AI, such as getting better insights from unstructured data. The company believes that this is just the beginning of a bigger breakthrough, as they are working to bring structured and unstructured data together and build a knowledge layer on top of that data fabric. They are also building an orchestration layer to get feedback daily and learn from customer usage. The company is excited about the potential of this new architecture and believes it will unlock many new opportunities for their customers.
