Why Is The HubSpot Share Price Target Being Revised Down Despite Earnings Beat?

In the two trading days following earnings, HubSpot shares (NYSE: HUBS), have had target price downgrades from a swathe of analysts, as talks of interest from Alphabet on a bid for the firm continue. One comment came up more than most.

As a leading provider of cloud-based customer relationship management (CRM) software, HubSpot has come into the crosshairs of Alphabet (NASDAQ: GOOG) who have started discussions with bankers to explore a bid for the $30bn market cap company, as earnings impress.

HubSpot's latest quarterly earnings report outpaced analysts' expectations, bringing in revenue of $581.91 million and surpassing the consensus estimate by more than $20 million. The reported earnings per share (EPS) of $1.68 was $0.19 higher than what had been anticipated by the market consensus, a positive sign for holders of the company. So why did the stock get 7 downward revisions?

It was the Macro headwinds comment that reared its face in more than one research note, but quite possibly the outlook trajectory is also playing a factor. The Q2 outlook warrants a slightly closer look, with the EPS range given to markets between $1.62-$164. Whilst this is actually higher than the consensus of $1.57, the range reflects a slight drop from Q1, whilst markets were expecting growth from Q1 consensus of $1.49 up to that $1.57 level.

Analysts Update HubSpot Share Price Target

First up to adjust was Barclays analyst Ryan MacWilliams, who kept a ‘hold' rating on the stock but lowered the firm's target to $575 from $600 – Macro headwinds on the downside despite supporting strong Q1 customer adds.

Analysts at Piper Sandler also issued a research note to investors, indicating a price target decrease for HubSpot from the previous $675.00 to a new figure of $655.00. In their note, the return of weaker demand conditions overshadowing a solid Q1, and ‘heightened execution risk' was the message of the day.

The other 5 firms to submit downside revisions:

• $700 (from $750) at Canaccord
• $650 (from $700) at Mizuho 
• $680 (from $700) at TD Cowen 
• $635 (from $710) at BMO Capital 
• $767 (from $798) at Citi 

Despite these downside revisions HubSpot's stock added 1.84% on Friday to end the week on a positive note.

The dynamic nature of market valuations means that there is a constant ongoing assessment of financial performance and growth projections. While the lower targets suggests a slight tempering of expectations, it's clear that HubSpot earnings in and of themselves were not the sole reason. A stalwart in the industry that still has plenty of backers.