On Thursday, Piper Sandler adjusted its outlook on HubSpot Inc (NYSE: NYSE:HUBS) shares, decreasing the price target to $655 from the previous $675 while sustaining an Overweight rating on the stock.
The firm acknowledged a strong first quarter for HubSpot, which featured a $20 million revenue beat, robust customer growth, and positive developments in artificial intelligence (AI) adoption.
Despite these achievements, the company experienced a return to weaker demand conditions that were prevalent earlier in the year, such as increased budget scrutiny and prolonged deal cycles.
The analyst pointed out that the momentum HubSpot observed in the previous quarter did not carry over into the first quarter. Instead, the company saw a reversion to earlier 2023 trends.
This shift has been attributed to a change in pricing that has led to greater downward pressure on average selling prices (ASPs) than anticipated, primarily due to the swift uptake of a new seat-based pricing model.
The revised price target reflects concerns over heightened near-term execution risks. However, the Overweight rating remains unchanged, supported by factors that could potentially boost the company's performance. These include industry consolidation tailwinds, strong traction with AI products, and widespread adoption across multiple product hubs.
Piper Sandler remains optimistic about HubSpot's prospects, citing the potential for these positive factors to contribute to an upward revision of the company's growth guidance for 2024. The current guidance projects an 18% growth at the midpoint, which could be exceeded if the mentioned drivers play out favorably.
InvestingPro Insights
Piper Sandler's recent analysis of HubSpot Inc (NYSE: HUBS) aligns with some of the data and projections available on InvestingPro. Notably, HubSpot's net income is expected to grow this year, according to InvestingPro Tips. This is a positive sign for investors looking for growth potential in the company's financial performance. Additionally, HubSpot's impressive gross profit margins, which stood at 84.08% for the last twelve months as of Q1 2023, highlight the company's ability to maintain profitability on its core operations.
From a valuation perspective, HubSpot is trading at a high Price / Book multiple of 22.76, reflecting a premium market valuation, which may be justified by the company's strong market position and growth prospects. The revenue growth of 25.38% for the same period also underscores the company's ability to expand its business amid challenging market conditions.
Investors should note that HubSpot does not pay a dividend to shareholders, which may influence investment decisions for those seeking income-generating assets. For further insights and a total of 12 additional InvestingPro Tips, interested readers can visit https://www.investing.com/pro/HUBS and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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