AI Adoption And Platform Consolidation Will Drive Powerful Long Term Upside

Catalysts

About HubSpot

HubSpot provides a unified customer platform that helps small and medium sized businesses grow by consolidating marketing, sales, service and data in a single AI powered CRM.

What are the underlying business or industry changes driving this perspective?

• Accelerating adoption of AI native capabilities, including embedded features, agents and LLM connectors, is lifting customer conversion and win rates. This dynamic could compound subscription revenue growth and expand earnings as usage scales faster than cost.
• Ongoing platform consolidation, as businesses replace fragmented point tools with HubSpot’s unified customer platform, is driving larger multi hub deals and higher attach rates. This trend supports sustained double digit revenue growth and structurally stronger net revenue retention.
• Rising demand from larger customers, reflected in growth of high value deals and upmarket wins, is shifting the mix toward higher ARPU contracts. This development may support faster ARR growth and operating margin expansion as enterprise oriented sales become more productive.
• A broad based shift toward AI driven go to market strategies, including Answer Engine Optimization and diversified digital channels, positions HubSpot’s Loop playbook, Data Hub and XFunnel integration to capture more marketing budgets. This can boost multi hub adoption and long term revenue per customer.
• Expansion of usage based monetization through credits for agents and data syncs, alongside AI enriched core seats, creates new levers to capture value as customers increase automation and data intensity. This supports a rising contribution from high margin incremental revenue and free cash flow.

Assumptions

This narrative explores a more optimistic perspective on HubSpot compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming HubSpot's revenue will grow by 18.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.1% today to 12.3% in 3 years time.
• The bullish analysts expect earnings to reach $605.0 million (and earnings per share of $8.39) by about December 2028, up from $-3.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $198.4 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 82.4x on those 2028 earnings, up from -5742.7x today. This future PE is greater than the current PE for the US Software industry at 31.9x.
• The bullish analysts expect the number of shares outstanding to grow by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The shift in buyer behavior toward AI overviews and LLM based answers is already driving global search traffic and website visits lower. If HubSpot’s Loop and Answer Engine Optimization tools fail to offset this structural decline, customers may see weaker lead generation and reduce marketing spend on the platform, pressuring subscription revenue growth and slowing expansion of net revenue retention.
• HubSpot’s AI strategy depends heavily on high quality, unified data across hubs. Many customers still have fragmented, low hygiene data estates that require time and services to clean up, which could delay effective AI adoption and limit upsell of multi hub solutions, constraining ARR growth and dampening improvements in average subscription revenue per customer and operating margins.
• The emerging usage based credits model for agents and Data Hub is still early. If customers remain within bundled credits or resist paying for incremental usage, the company’s ability to monetize rising AI and data intensity could fall short of expectations, leading to slower than anticipated growth in high margin revenue and limiting long term earnings and free cash flow expansion.
• HubSpot’s move upmarket and reliance on platform consolidation require sustained large deal momentum and competitive wins against entrenched enterprise CRMs. Any slowdown in enterprise demand, increased pricing pressure or higher churn from larger customers could cap billings growth and prevent the step up in net revenue retention that management is targeting, ultimately weighing on earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for HubSpot is $735.17, which represents up to two standard deviations above the consensus price target of $585.47. This valuation is based on what can be assumed as the expectations of HubSpot's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $800.0, and the most bearish reporting a price target of just $450.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $4.9 billion, earnings will come to $605.0 million, and it would be trading on a PE ratio of 82.4x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $387.19, the analyst price target of $735.17 is 47.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.