HubSpot Inc. reported better-than-expected first-quarter results, but investors focused on a cautious outlook for the current quarter and the impact of the company's transition to artificial intelligence-driven pricing. The stock tumbled nearly 12% in after-hours trading following the earnings release.
Q1 Financial Highlights
The Cambridge, Massachusetts-based software company posted first-quarter revenue of $881.0 million, a 23% increase year-over-year, or 18% on a constant-currency basis. This surpassed the Wall Street consensus of $862.8 million. Subscription revenue, which forms the bulk of HubSpot's business, reached $862.3 million, also up 23% from the prior year.
On a GAAP basis, net income came in at $32.6 million, a sharp turnaround from the $21.8 million loss reported in the same period last year. Adjusted earnings per share of $2.72 easily beat the $2.47 analysts had projected, according to data from StockStory on Barchart.
AI Transition Creates Headwinds
Despite the strong quarterly performance, management warned that the second quarter is off to a slow start. Chief Financial Officer Kathryn Bueker told analysts that ongoing trials and recent pricing adjustments related to HubSpot's new AI-powered products "may extend sales cycles." The company is pivoting toward an "agentic" customer platform, where AI agents handle tasks like customer support, prospecting, and data work. HubSpot now aims to generate revenue not just from user seats but also from tasks completed by its AI, including a product called AEO that helps marketers leverage AI-generated answers.
Bueker noted that the company recently rolled out sales training on these new offerings, contributing to the slower start in Q2. The transition is expected to be a multi-quarter process.
Customer and Financial Metrics
The company's total customer count rose 16% year-over-year to 299,458 as of March 31. Average subscription revenue per customer stood at $11,722. Calculated billings, which incorporate revenue and changes in deferred revenue, jumped 19% to $912.3 million.
For the second quarter, HubSpot forecasts revenue between $897 million and $898 million, representing an 18% increase from a year ago. Full-year revenue is expected to range from $3.700 billion to $3.708 billion. The company also raised its non-GAAP operating margin guidance to 21% for the year, which CFO Bueker noted is within its 2027 target and arriving a year ahead of schedule.
"Revenue growth, customer growth, and operating margin expansion" defined the quarter, said CEO Yamini Rangan. She highlighted that customers have begun using HubSpot's suite of AI products, including Customer Agent, Prospecting Agent, and Data Agent.
Market Context and Analyst Reaction
HubSpot's AI push places it in direct competition with established software giants. Salesforce markets its Agentforce platform for autonomous AI agents across sales, service, and marketing, while Adobe recently launched CX Enterprise, an agentic AI system for customer experience management.
Analysts at Cantor Fitzgerald downgraded HubSpot to Neutral from Overweight and slashed their price target to $200 from $325, citing extended sales cycles and continued growth challenges in the near term. The firm noted that customers may hesitate as they familiarize themselves with new tools, potentially making near-term growth appear choppy even as AI adoption accelerates.
Balance Sheet and Capital Allocation
During the quarter, HubSpot spent $211 million on share repurchases. The company ended March with $1.8 billion in cash, cash equivalents, and investments, providing management with flexibility to navigate the transition. However, Friday's market response made clear that investors are seeking evidence that AI agents can drive sustainable revenue growth without undermining the core business.
