HUBS

HubSpot is a high-quality, durable software franchise. Its agentic customer platform serves 288,706 customers across more than 135 countries, with subscriptions accounting for 98% of revenue. Revenue grew 19.2% to $3.13B in FY2025 — the latest in a long string of ~20%+ years (from $1.30B in FY2021) — at an 83.8% gross margin, and operating cash flow rose 27.1% to $761M. The balance sheet is pristine: $882M of cash (up 72.1%), liabilities/equity of just 0.87x, and management deployed $500M into buybacks. This is a market leader in the mid-market B2B CRM space with strong unit economics and a freemium funnel feeding upgrades.

The problem is GAAP profitability versus the price. Despite the top-line scale, FY2025 operating income was only $7.38M (0.2% operating margin) and net income was $45.9M (1.5% net margin, 2.2% ROE), translating to $0.86 of diluted EPS. The company only crossed into GAAP profitability in FY2024 after years of losses, and retained earnings remain at -$754M. R&D alone was $906M — larger than gross profit growth — reflecting heavy reinvestment, including the AI/Breeze buildout management repeatedly flags. The cash-flow story is far healthier than the earnings story, but the stock trades on the latter optically.