Salesforce ($CRM) has been the singular fortress and gatekeeper of the Customer Relationship Management industry for over a decade. Through the years they've broadened their product portfolio with an ecosystem comprising every sales and marketing app and use case imaginable relating to software. M&A has pushed the business beyond its core competence to encompass apps like Slack (workflow communication) and Tableau (analytics and visualization).

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There is however an argument to be made against the now $150B market cap giant. We've seen time and again that nimbler solutions that were designed from the ground up every few years provide a value proposition that can justify switching costs for even mid-large enterprises. It's hard to keep the innovation alive at scale and thus M&A helps entangle customers and build dependence when a company can't quite re-design its software as the latest best practices flourish.

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HubSpot ($HUBS), by most market share metrics, is the #2 CRM Platform now and is doing extremely well. By the company's own metrics, a team of 50 may incur an estimated cost of $75,000 a year with Hubspot vs. an equivalent $236,800 from Salesforce for equivalent services. Take it with some salt, but when cost cutting is on the horizon, such a difference for enterprises not requiring advanced Salesforce functionality makes switching extremely attractive.

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HubSpot began as a marketing automation platform and has since evolved by branching out into Sales and CRM use cases. With a "land and expand" model, they last recorded 41% YoY growth on a constant currency basis, growing their customer count by 25% YoY. Not hyper-growth by any means, but commendable business execution.

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To add, they're scoring Free Cash Flow generation, which is a strategic advantage. When younger competitors in specific use-case domains have to fire off employees, while reducing their S&M spending, HubSpot doesn't have to do the same and can continue on its current trajectory. This theoretically, should leave financially unsound innovators in the dust amidst this tricky macro.

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In summary, HubSpot appears to be at a fortunate size along its S-curve cycle. Innovative enough to drive serious growth through product expansion, and profitable enough to not be bothered by cash-flow consequences in a delirious macro environment. As a result, it's worth investigating further.

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To contextualize:

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If one finds high-quality and best-of-breed solutions in Hubspot, there's a long runway to go with broad revenue drivers against a massive market opportunity in the $30B+ range. One will also have to pay a premium on EV/S valuations but that should be worth it considering the runway ahead.

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At an NTM EV/S of 7.8x, HUBS is not priced like a value stock, nor should it be. But it is cheap enough for investors with a long-term horizon to dig in and consider it as a potential investment in the rather macro-resilient software space.

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Under investigation for my portfolio. No position yet.