HubSpot a 'focused grower with strong upside potential': Macquarie

Investing.com -- Macquarie initiated coverage of HubSpot (NYSE:HUBS) at Outperform with a 12-month target price of $730 on Monday, implying a 20% total shareholder return. 

The firm sees sustainable growth opportunities, FY25 revenue upside potential, and operating margin expansion as key drivers for the stock.

HubSpot is said to stand out as the fastest-growing company among the top 10 broad-line customer relationship management (CRM) vendors, benefiting from its competitive differentiation in serving businesses with 2 to 2,000 employees. 

“We see several factors that can drive meaningful revenue upside, including improvements in net expansions, a pricing model change, and a greater focus on landing new large (100+ employee) customers,” Macquarie wrote.

Macquarie expects FY25 revenue to reach $3.01 billion (+14.5% Y/Y) and FY26 revenue to rise to $3.48 billion (+15.6% Y/Y). 

The firm also sees significant upside in operating margin improvement, even beyond HubSpot’s long-term target of a 25% non-GAAP operating margin.

However, macroeconomic risks are said to remain a concern. Recessionary conditions could slow new customer acquisitions, increase attrition in the SMB segment, and limit seat expansions and edition upgrades. 

Additionally, Macquarie noted that HubSpot’s valuation appears only fair, with mixed comparisons across EV/revenue and EV/FCF multiples.

Despite these risks, Macquarie believes greater visibility into FY25 revenue and EPS growth could be a key upside catalyst. 

“Progress towards achieving meaningful upside relative to initial FY25E revenue guidance (e.g., $68M or more of upside) will likely be sufficient to drive HUBS' outperformance,” the firm stated.

Macquarie’s $730 price target is based on an average of EV/revenue ($685), EV/FCF ($687), and DCF valuation ($818). 

While macro risks could pose challenges, Macquarie sees HubSpot’s strong fundamentals supporting further long-term upside.