According to a Grand View Research report, the market for customer relationship management (CRM) was worth $43.7 billion last year and it is expected to expand at a compounded annual growth rate (CAGR) of 10.6% from 2021 to 2028. The report also says that a key trend in this industry is the rising demand for the deployment of CRM suites and solutions through the software-as-a-service (SaaS) model.
Using the TipRanks Stock Comparison tool, let us compare two customer relationship management (CRM) companies, Salesforce and HubSpot, and see how Wall Street analysts feel about these stocks.
Salesforce’s key product is the Customer 360 platform, an artificial intelligence (AI) powered CRM platform that helps companies to sell, service, market, and conduct business. The company also offers cloud-based solutions. Salesforce has pursued a strategy of adding new capabilities to its Customer 360 platform through acquisitions including Vlocity for $1.33 billion in July last year and Tableau for $15.7 billion in August 2019.
More recently, the company announced the acquisition of Slack, an enterprise communications platform valued at $27.7 billion. This acquisition is expected to close in the second quarter of this year.
The company’s analytical service offering, Tableau, provides analytics solutions to customers and was part of eight of Salesforce’s top 10 deals in the first quarter and more than 60% of the company’s seven-figure plus deals.
CRM’s integration services solution, MuleSoft, helps its customers unify, unlock, and secure their data and this offering was included in five of Salesforce’s top 10 deals. In Q1, CRM saw a record number of “seven-figure deals”.
Last week, Salesforce reported robust Q1 results, topping both earnings and revenue estimates driven by strong business momentum. The company reported non-GAAP diluted earnings of $1.21 per share, a jump of 72.9% year-over-year and topping analysts’ estimates of $0.88 per share. CRM posted revenues of $5.96 billion, up 23% year-over-year, which came in ahead of the consensus estimate of $5.89 billion.
Currently, the company has remaining performance obligations (RPO) of $17.8 billion, an increase of 23% year-over-year or up 20% in constant currency terms. The current RPO indicates all future contractual revenue that is expected to be recognized as revenue over the next year.
Based on the solid Q1 results, the company raised its financial outlook for the second quarter. Management now expects Q2 FY22 non-GAAP EPS to range between $0.91 and $0.92. The company has forecast second-quarter revenues to land between $6.22 billion and $6.23 billion.
For FY2022, Salesforce expects to earn revenues between $25.9 billion and $26 billion while non-GAAP earnings are likely to be in the range of $3.79 per share to $3.81 per share. It is important to note here that the FY22 revenue outlook includes $500 million from its acquisition of Slack Technologies and assumes that the acquisition will close in the second quarter. (See Salesforce Inc stock analysis on TipRanks)
Following the earnings, Oppenheimer analyst Brian Schwartz reiterated a Buy and a price target of $265 on the stock. Schwartz said in a research note to investors, “Salesforce.com reported bullish F1Q results and guidance well ahead of expectations on both top and bottom lines. CRPO, which we view as the best leading indicator, accelerated to 32% growth in F1Q, and combined with the higher outlook implies results across the four clouds well-ahead of expectations too.”
“Additionally, Salesforce is generating a record number of big deals and magnitude of upside for the backlog and billings this quarter, which can support long-term growth. We believe the recovery and strength in the customer software market this year is driving a material benefit to the company’s bookings. On balance, the F2Q CRPO guidance implies a deceleration from this quarter, but could prove conservative given the strength in the end-market demand and execution,” Schwartz added.
In the past year, the stock has jumped 33.9%.
Consensus among analysts on Wall Street is a Strong Buy based on 20 Buys and 5 Holds. The average analyst price target of $273.75 implies around 15.9% upside potential to current levels.
HubSpot provides a cloud-based CRM platform that is comprised of a service hub, marketing hub, sales hub, and content management system (CMS) hub. HUBS is following a market segmentation strategy and is targeting mid-market business-to-business (B2B) companies. HubSpot defines mid-market companies as companies that employ between 2 and 2,000 people.
A majority of the company’s revenue comes from subscriptions to its cloud-based platform and other related professional services. In Q1, 96% of the company’s total revenues were subscription-based. Most of the company’s subscriptions are for one year or less and HUBS earns additional revenues if the number of contacts stored and tracked in its client’s database exceeds certain specified thresholds.
HUBS is targeting mid-market companies who are looking to scale up and is providing them with products containing top-notch features that are usually only available to large enterprises at a competitive price.
HubSpot’s CTO and Co-Founder Dharmesh Shah said at its earnings call, “HubSpot CRM platform is crafted in-house, not cobbled together with acquisitions. That’s why it’s powerful and easy to use instead of being clunky and expensive like many traditional enterprise platforms. This is at the heart of what makes HubSpot different. We’re continuing to invest significantly in the platform and recently introduced the HubSpot CRM suite, which is designed to help our customers unlock the full power of our CRM platform.”
In April this year, the company expanded its suite of tools with the Operations Hub where users can unify customer data in a connected CRM platform, automate tasks, and maintain an efficient database.
The company pointed out at its earnings call that while it is investing in the automation and growth of its products at the lower end, it is also investing in its products to make them better and improving its sales strategy to cater to large enterprises at the higher end.
HubSpot’s Chief Customer Officer, Yamini Rangan said at the earnings call, “We are seeing strong customer additions as a result of the simplification and automation at the low end, balanced by strong ASP driven at the high end. These investments are translating into multi-hub deals, full platform deals and larger deals across the board.”
Earlier this month, HUBS announced its Q1 results with total revenues of $281.4 million, up 41% year-over-year with non-GAAP earnings of $0.31 per diluted share versus non-GAAP earnings of $0.30 per diluted share in the same quarter last year.
The company added a record 9,900 net customers in the first quarter with total customers of 114,000 at the end of Q1, a jump of 45% year-over-year. HUBS earned average subscription revenue of $9,900 per customer that was up by one point quarter-on-quarter but dropped by one point year-over-year.
According to the company, around 55% of its customers are currently using more than two suites of tools (or hubs). (See HubSpot Inc stock analysis on TipRanks)
In the second quarter, HUBS expects revenues to range between $293 million and $297 million while non-GAAP EPS is forecast to be between $0.30 and $0.32. In FY21, the company expects to earn revenues between $1,237 million and $1,247 million while the forecast for non-GAAP EPS is in the range of $1.61 to $1.65.
Around a month back, Oppenheimer analyst Brian Schwartz reiterated a Buy on the stock. Schwartz commented on the company’s earnings in a research note, “HubSpot delivered a strong first-quarter owing to broad-based business strength, improved retention, and good sales execution. Management issued strong commentary on demand and the 1Q business outperformance led to a higher annual outlook. HubSpot showed 41% revenue growth in 1Q and guided 40%-plus revenue growth for the year.”
“We believe the company’s stellar results and guidance, in combination with bullish experience management and customer service supplier reports this earnings season, are additional data points suggesting that new spending in the customer market is currently rebounding faster than the other application categories. For HUBS, the debate will likely shift toward the sustainability of the business acceleration in 1Q, and if a materially successful outcome for the business in 2021 is already priced into the valuation,” Schwartz added.
Shares of HUBS have shot up 130.8% in the past year.
Consensus among analysts on Wall Street is a Strong Buy based on 16 Buys and 2 Holds. The average analyst price target of $595.87 implies approximately 21.1% upside potential to current levels.
It is important to note here that while CRM seems to be targeting a wide range of companies with its Customer 360 platform, HUBS is targeting specific mid-market B2B companies with its CRM suite of products.
Additionally, Salesforce is looking at adding new capabilities to its platform through acquisitions, but HUBS is investing in improving its products and expanding its service offerings. While analysts are bullish about both stocks, based on the upside potential over the next 12 months, HUBS seems to be a better buy.