Research from Kerrisdale Capital, Kerrisdale Capital Management

Kerrisdale Capital Management

Research from Kerrisdale Capital

Equity Bottom-Up

<ul>
<li>We are short shares of <a href="https://www.smartkarma.com/entities/hubspot-inc" target="_blank" data-smartkarma-citation="entities:7119" rel="noopener">Hubspot Inc (HUBS US)</a>, an unprofitable SaaS company that, despite the recent downward re-rating of the tech sector, still trades at 20x forward revenue. HubSpot is not worth anything close to its current valuation.</li>
<li>The company is a COVID beneficiary whose future growth will likely pale in comparison to its pandemic-fueled pull-forward in sales. Its expensive products face an increasing plethora of dramatically lower-priced and often superior alternatives, backed by billions of dollars of free-flowing venture capital. Top executives are selling shares and departing.</li>
<li>Naturally, HubSpot doesn’t turn a profit. Should it ever try to, its margins will likely disappoint.</li>
</ul>
<hr>
Table of Contents
<ul>
<li>COMPANY BACKGROUND</li>
<li>HUBSPOT IS PERSISTENTLY UNPROFITABLE</li>
<li>HUBSPOT’S PRODUCTS ARE NOTHING SPECIAL</li>
<li>CAPITAL HAS BEGUN TO FLOW RAPIDLY INTO HUBSPOT’S COMPETITORS </li>
<li>HUBSPOT LEADERSHIP IS IN FLUX AND HAS STEADILY SOLD STOCK</li>
<li>CONCLUSION </li>
</ul>


We are short shares of Hubspot Inc (HUBS US), an unprofitable SaaS company that, despite the recent downward re-rating of the tech sector, still trades at 20x forward revenue. HubSpot is not worth anything close to its current valuation.
The company is a COVID beneficiary whose future growth will likely pale in comparison to its pandemic-fueled pull-forward in sales. Its expensive products face an increasing plethora of dramatically lower-priced and often superior alternatives, backed by billions of dollars of free-flowing venture capital. Top executives are selling shares and departing.
Naturally, HubSpot doesn’t turn a profit. Should it ever try to, its margins will likely disappoint.


Table of Contents

COMPANY BACKGROUND
HUBSPOT IS PERSISTENTLY UNPROFITABLE
HUBSPOT’S PRODUCTS ARE NOTHING SPECIAL
CAPITAL HAS BEGUN TO FLOW RAPIDLY INTO HUBSPOT’S COMPETITORS 
HUBSPOT LEADERSHIP IS IN FLUX AND HAS STEADILY SOLD STOCK
CONCLUSION 


HubSpot, Inc. (HUBS) - Not Worth All the Hubbub

Independent research on the U.S. markets, Baptista Research

Baptista Research

Independent research on the U.S. markets

Baptista Research is an independent financial research house focused on the U.S. markets. We provide equity research as well as credit research reports on the top-listed U.S. companies with most of our focus on technology, consumer goods and services, automobiles, industrials, oil and gas, pharma, and healthcare. Our research has served more than 3000 institutional investors including mutual funds, hedge funds, banks, family offices, and various buy-side firms. We operate a research subscription service where institutions, as well as retail investors, can have priority access to all our research. We also have a wide distribution of our research reports across some of the top global financial platforms. Apart from equity research and credit research, we also provide advisory services with respect to mergers & acquisitions (M&A), private equity/ venture capital fundraising, valuation reports, and investment management services for corporates.
Baptista Research is owned and managed by Ishan Majumdar, an ex-Venture Capitalist/ Investment Banker, a Chartered Accountant, and a Masters’ degree holder in Management from HEC Paris. Ishan has nearly a decade of experience in Mergers and Acquisitions, Leveraged Buyouts (LBOs), Venture Capital Investing, Corporate Strategy, and Valuation in front-office roles at the likes of BNP Paribas CIB, Credit Agricole CIB, Groupe Danone, and TIW Private Equity. He has worked on and closed multiple acquisition deals, leveraged buyouts, and start-up investment transactions.

Equity Capital Markets

<ul><li>HubSpot experienced another amazing quarter, where revenue grew by 47% year-over-year in constant currency and total customers grew 34% year-over-year to more than 128,000.</li><li>Besides, their positive results demonstrate that HubSpot is laying the groundwork for these businesses to grow.</li><li>Furthermore, HubSpot is bringing a human-friendly product and purchasing experience to major corporations, which has typically been observed in small and mid-market businesses.</li></ul>

HubSpot experienced another amazing quarter, where revenue grew by 47% year-over-year in constant currency and total customers grew 34% year-over-year to more than 128,000.Besides, their positive results demonstrate that HubSpot is laying the groundwork for these businesses to grow.Furthermore, HubSpot is bringing a human-friendly product and purchasing experience to major corporations, which has typically been observed in small and mid-market businesses.

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<a href="https://www.smartkarma.com/entities/freshworks-inc" target="_blank" data-smartkarma-citation="entities:34147:1" rel="noopener">Freshworks (FRSH US)</a> announced its <a href="https://www.pymnts.com/news/ipo/2021/freshworks-aims-to-go-public-with-9b-valuation/" target="_blank" rel="noopener">IPO price range</a> of $28 to $32 per share and it is selling 28.5 million shares. At the high end of this price range, the company would raise $912 million and it would be valued at nearly <a href="https://goodwordnews.com/what-to-think-of-freshworks-first-ipo-price-range-techcrunch/" target="_blank" rel="noopener">$9.6 billion</a> (assuming fully diluted shares outstanding of 300 million).<div class="content-highlight">
Our base case valuation of Freshworks is implied market cap of US$13.5 billion or US$45 per share, which is 41% higher than the high end of the IPO price range (US$32). Given the solid upside, we have a POSITIVE view of this IPO. 
Our valuation of Freshworks is based on an EV/S multiple of 22.6x using our estimated sales of $546 million in 2022. The EV/S multiple of 22.6x is based on 30% premium to the average multiple of the comps in 2022.
</div>

Freshworks (FRSH US) announced its IPO price range of $28 to $32 per share and it is selling 28.5 million shares. At the high end of this price range, the company would raise $912 million and it would be valued at nearly $9.6 billion (assuming fully diluted shares outstanding of 300 million).
Our base case valuation of Freshworks is implied market cap of US$13.5 billion or US$45 per share, which is 41% higher than the high end of the IPO price range (US$32). Given the solid upside, we have a POSITIVE view of this IPO. 
Our valuation of Freshworks is based on an EV/S multiple of 22.6x using our estimated sales of $546 million in 2022. The EV/S multiple of 22.6x is based on 30% premium to the average multiple of the comps in 2022.


<ul><li>HubSpot surged past the target price from our last report as the company had a robust second quarter with revenues accelerating by a staggering 47% year-over-year in constant currency.</li><li>The key driver behind this continued growth is the digital transformation that HubSpot has been evangelizing for the past 15 years.</li><li>HubSpot's low pricing of its products and the continued new additions should help continue its growth trajectory in the coming quarters.</li></ul>

HubSpot surged past the target price from our last report as the company had a robust second quarter with revenues accelerating by a staggering 47% year-over-year in constant currency.The key driver behind this continued growth is the digital transformation that HubSpot has been evangelizing for the past 15 years.HubSpot's low pricing of its products and the continued new additions should help continue its growth trajectory in the coming quarters.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

mportant price support levels previously highlighted have held strong, including the 3200-3230 level on the S&amp;P 500, 10,855 on the Nasdaq 100, and $145/the 200-day MA on the Russell 2000 (IWM). Additionally, both the S&amp;P 500 and Nasdaq 100 are breaking out from their bullish falling wedge patterns that have been taking shape since the early-September highs. These bullish inflections are encouraging and, combined with market dynamics which remain mostly healthy, lead us to believe the lows of this recent correction are likely in.  In today’s report we highlight attractive Groups and stocks within Consumer Discretionary &amp; Technology: Casinos &amp; Gaming, Small-Cap, Solar Energy, Fuel Cells/Lithium Batteries, and Software, Customer Relationship Mgt.

mportant price support levels previously highlighted have held strong, including the 3200-3230 level on the S&amp;P 500, 10,855 on the Nasdaq 100, and $145/the 200-day MA on the Russell 2000 (IWM). Additionally, both the S&amp;P 500 and Nasdaq 100 are breaking out from their bullish falling wedge patterns that have been taking shape since the early-September highs. These bullish inflections are encouraging and, combined with market dynamics which remain mostly healthy, lead us to believe the lows of this recent correction are likely in.  In today’s report we highlight attractive Groups and stocks within Consumer Discretionary &amp; Technology: Casinos &amp; Gaming, Small-Cap, Solar Energy, Fuel Cells/Lithium Batteries, and Software, Customer Relationship Mgt.

United States

Electronic Arts Inc. develops, publishes, and distributes branded interactive entertainment software worldwide for video game consoles, personal computers, handheld game players, and cellular handsets. The Company also provides online game-related services.

Aspen Technology, Inc. provides software solutions. The Company offers asset optimization software that optimizes asset design, operations, and maintenance in complex, industrial environments to enable organizations to meet their business goals for sustainability and profitability. Aspen Technology serves customers worldwide.

Check Point Software Technologies Ltd. develops, markets and supports a range of software and hardware products and services for information technology (IT) security and offers its customers a network and gateway security solutions, data and endpoint security solutions and management solutions.

SS&C Technologies Holdings, Inc. develops and markets computer software for financial services providers.  The software enables trading and modeling, portfolio management and reporting, accounting, performance measurement, reconciliation, reporting, processing, and clearing.

Fair Isaac Corporation provides analytics, including predictive modeling, decision analysis, intelligence management, decision management systems, and consulting services.  The Company helps companies in countries around the world acquire customers more efficiently, increase customer value, reduce fraud, lower operating expenses, and enter new markets more profitably.

Manhattan Associates, Inc. provides information technology solutions for distribution centers.  The solutions are designed to enable the efficient movement of goods through the supply chain.  The Company's solutions optimize the receipt, storage, and distribution of inventory, as well as manage equipment and personnel within a distribution center.

PTC Inc. develops and delivers technology solutions, comprised of software and services. The Company's technology is primarily used by discrete manufacturers to design, operate and maintain complex products. PTC's technology is also used to connect products to the Internet for purposes of capturing and analyzing information from them.

Tyler Technologies, Inc. provides end-to-end information management solutions and services for local governments. The Company's client base includes local government offices throughout the United States, Canada, Puerto Rico, and the United Kingdom.

Splunk Inc. develops web based application software. The Company provides software that collects and analyzes machine data generated by websites, applications, servers, networks, and mobile devices. Splunk serves customers worldwide.

MicroStrategy Incorporated provides business intelligence software and related services.  The Company's technology platform enables departments and enterprises to deploy Web-based reporting and analysis solutions.  MicroStrategy also offers consulting, training, and support services.  Solutions are provided to retail, finance, telecommunications, insurance, dot-com, and healthcare industries.

Xero Limited offers an online accounting system.  The software features bank transaction importing, a cashbook, a general ledger, invoicing, accounts receivable, accounts payable, financial reporting, and management of expense claims.

Oracle Financial Services Software Ltd. provides comprehensive information technology solutions to the financial services industry worldwide. The Company provides transaction processing and accounting software for banks, investment managers and mutual funds. Oracle Financial also provides internet delivery of financial services as well as business intelligence and analytical applications.

Konami Holdings Corporation provides digital entertainment, health and fitness and gaming products. The Company develops and sells video games, mobile games and computer games, gaming machines, pachislot and pachinko machines, and fitness machines as well as operates health and fitness clubs.

Nexon Co., Ltd. mainly develops and services, online games for PC and mobile devices. The company also offers consulting services related to online-games. Nexon operates in Japan.

ORACLE CORPORATION JAPAN sells a variety of software, including database management system software, application development tools, decision-making support tools, and business related applications.  The Company also provides support services for users.

IFLYTEK Co., Ltd. specializes in speech intelligence and artificial intelligence technology.  The company also develops chip product, voice messaging software and e-government system integration software.

Nemetschek AG provides standard software for designing, constructing and managing buildings and real estate.  The Company's software offers cost estimation, design, planning, account calculation, cost management, facilities management, document management and B2B e-commerce capabilities.  Nemetschek's software is sold in approximately 52 countries and 13 languages.

The Sage Group plc is a software publishing company. The Group develops, publishes and distributes accounting and payroll software for personal computer systems. Via its subsidiaries, Sage also maintains a registered user database which provides a market for their related products and services, including computer forms, software support contracts, program upgrades and training.

WiseTech Global Pty Ltd provides various technology and information technology management solutions. The Company offers cloud based various technology platforms, market specific software and logistics technology solutions, such as edienterprise, a platform supply chain logistics management system, software-as-a-service, and clinical management software. 

CyberArk Software Ltd. provides information technology security solutions. The Company offers services which protect organizational privileged accounts from cyber attacks.

HubSpot, Inc. provides a cloud-based marketing and sales software platform. The Company offers integrated applications that helps in lead generation and social marketing.

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Hubspot Inc (HUBS US)

HubSpot, Inc. (HUBS) - Not Worth All the Hubbub

We are short shares of HubSpot, Inc. (HUBS), an unprofitable SaaS company that, despite the recent downward re-rating of the tech sector, still...

Kerrisdale Capital Management

HubSpot Inc. - Investment Thesis

HubSpot experienced another amazing quarter, where revenue grew by 47% year-over-year in constant currency and total customers grew 34%...

Baptista Research

Freshworks IPO Valuation Analysis

Our base case valuation of Freshworks is market cap of US$13.5 billion or US$45 per share, which is 41% higher than the high end of the IPO price...

Douglas Kim

HubSpot Inc. - Investment Thesis

HubSpot surged past the target price from our last report as the company had a robust second quarter with revenues accelerating by a staggering...

Baptista Research

U.S. Equity Strategy: Correction Over?

In today’s report we highlight attractive Groups and stocks within Consumer Discretionary & Technology: CD-24 Casinos & Gaming, Small-Cap,...

Vermilion Research

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