On Wednesday, KeyBanc initiated coverage on HubSpot Inc (NYSE:) with an Underweight rating and a price target of $520. The firm acknowledged the difficulty in assigning this rating, recognizing HubSpot’s potential for fundamental outperformance. HubSpot has expanded from its origins in inbound marketing to a comprehensive front-office platform, including marketing, sales, service, and commerce capabilities.

The analyst noted that HubSpot’s ability to launch and scale new products could be a positive sign for the company’s growth. However, they expressed concerns about the company’s recent pricing changes, aimed at decreasing friction in adoption and expansion by simplifying its pricing structure and maintaining seat-based pricing. Despite the potential benefits of this strategy, there is a possibility of go-to-market disruption in both direct and indirect channels.

HubSpot’s existing customers are expected to experience a modest price increase of approximately 5%, taking effect mostly upon 2025 renewals. KeyBanc forecasts a revenue acceleration for HubSpot, bolstered by an improved macro selling environment anticipated in 2025 and 2026. Additionally, the firm projects incremental margins of 25.0% and 26.5% for those respective years, which is a significant increase from the average margin of around 12.5% leading up to 2023.

The analysis by KeyBanc included one of the highest free cash flow growth compound annual growth rates (CAGRs) in their discounted cash flow models across all their coverage areas. They also applied a 25x terminal multiple in their valuation. Despite these optimistic assumptions, KeyBanc expressed concern that the risk-reward profile for HubSpot may be tilting downward.

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