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HubSpot CEO on AI, pricing and Clearbit - and no mention of the elephant in the room

Stuart Lauchlan Profile picture for user slauchlan May 10, 2024
Summary:
Alphabetic scuttlebutt persists, but for now HubSpot CEO Yamini Rangan is sticking to the long term plan...

elephant
(Ssssshhh!)

As HubSpot turned in its Q1 numbers yesterday, there was a great big elephant in the room that stayed silent. Last month scuttlebutt emerged about the company potentially being acquired by Alphabet to beef up Google’s efforts to compete with the likes of Salesforce, Oracle and Microsoft in the SMB CRM space. According to a report from Bloomberg yesterday, a deal is being actively discussed, although it inevitably didn’t merit even a passing mention on HubSpot’s post-earnings analyst call.

Instead CEO Yamini Rangan focused on the core business of HubSpot

We ground ourselves on not what is changing today, but what will not change for our customers. Our customers will need easy-to-use solutions that can help them grow. Our customers will need us to drive innovation so that they can compete with bigger companies in the age of AI. This is exactly what we are focused on.

For Q1, HubSpot turned in a net income of $5.9 million, compared to a loss of $36.6 million for the comparable year ago period, with revenue up from $501.6 a year ago to $617.4 million. Subscription revenue of $603.8 million was up 23% year-on-year.

The firm added 11,700 net new customers during the quarter, bringing the total customer numbers to 216,840, up 22% year-on-year.

Clearbit

While the Alphabet speculation has grabbed the headlines, HubSpot has been carrying on with absorbing its own acquisition of Clearbit. Rangan said:

It’s the early days with Clearbit, and but it’s going really well. It’s been a quarter and a half since the team got integrated into HubSpot. Now, if we take a step back, the vision that we have is really to bring that type of enriched data and powerful AI tools so that can drive insights into our entire customer platform.

We think that this is a way for us to accelerate our overall customer platform vision, and we are seeing that play out. So, phase one of integration was really to bring the Clearbit product into the hands of our installed-base customers. And, that is going well. It’s, again, early days. But, really the thing that we are excited about is natively bringing the company enrichment data, the intent data, and the contact enrichment data natively into HubSpot so it can power all use cases.

And, this is the way we see is the world operating. When you start thinking about a campaign, you already have the information about the companies that look like your customers, and then you can apply AI tools on top of that so that your campaigns can be supercharged. So, the combination of enriched data, AI, and a unified customer platform is really powerful, and we feel very good about where we are going in terms of that vision.

Pricing

HubSpot’s shift to a seat-based pricing model got underway during Q1, with new customers using it since March and existing customers being migrated over towards the end of this year. Customers will be migrated over at the same Annual Recurring Revenue rate they are currently on, with any increases on their subscription being capped at five percent when they next renew.

It’s a work in progress, said Rangan:

Customers like the model, and they’re adopting the model. But, if you step back and think about it, it is a big change in terms of the actual go-to-market motion. Our reps need to drive even faster velocity. They need to be able to say which ones are starter customers with one or two seats versus the pro customers with more seats, and it takes us a minute to kind of get that motion settled.

Having said that, we have driven a ton of enablement, of our entire go-to-market motion. We have provided clarity in terms of how this needs to get approached by partners as well as our reps. So, I think it’s going to take a minute for the model to settle in, but we’re seeing the most important thing, which is customer adoption.

But there is a price to be paid, she added:

While we continue to be very excited about the model change for our customers on HubSpot, the timing and speed of the change caused a negative impact on our business in March that will likely persist for a couple of months. We expected this change to lead to lower initial ASP, higher volume of customers, and higher rates of upgrades over time.

In March, we saw faster adoption of the seats model by customers, which led to a more immediate impact of lower ASPs but a slower pickup in the volume of new customers. We’re seeing more positive trends in April, but it’s going to take a few months for the higher volume of additions to offset the initial lower price.

Having said that, I want to be clear that we have high-conviction that seat pricing change is the right decision for our customers as it will allow them to get started and scale more easily with HubSpot. And, it is the right decision for HubSpot as it will allow us to bring many more customers onto our platform, grow our net revenue retention rates as customers add more seats over time, and align pricing with the value we are creating from our AI-powered smart CRM.

AI

Yes, of course there’s an AI story to tell. Rangan explained:

If you go back to 2014, we said, ‘Everybody needs to have a great CRM’. And if you look at last year…we said, ‘Everybody has to have a great AI-powered CRM.

Our approach has been embed all of the features into hubs, embed all of the features into the platform, and make it super easy for our customers to start with AI features and continue to grow with AI features. I think it’s a very differentiated strategy, one that leans into our strength of easy-to-use, fast time-to-value, and that’s very different from, a lot of the competitors that are on the path of charging for AI features or getting started with a services engagement.

She added:

One of the things that we have recognized about AI is this - go-to-market teams have had the same age-old problems over multiple decades. They’ve spent too much time looking at information. They spend too much time collecting and gathering instead of being in front of customers. They spend too much time capturing information that can then be part of hand-off.

AI creates a new approach to solving age old go-to-market problems. We want to do it in a way where it is fundamentally easy for our customers to adopt. And so, I do think that our approach is differentiated, and our approach is going to help our customers adopt it faster.

My take

We’re still in the early innings of transforming from a suite to a customer platform. We’re becoming the de facto standard for scaling companies, and we are setting the pace of innovation with AI. This gives me confidence in our ability to drive long-term durable growth.

Whether that vision is enacted as an independent company or as a division of a mega-giant remains to be seen.

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