Hubspot files for an IPO, but documents reveal a gloomy financial picture

Boston-based marketing automation platform HubSpot filed its S-1 documents with the SEC today, signalling its intention to raise $100 million in an initial public offering.

By going public, HubSpot is following the route of its marketing automation competitor Marketo, which filed for an IPO last year. Unfortunately, also like Marketo, HubSpot’s financial documents revealed that the company hasn’t turned a profit in the last five years.

Although its revenues have grown at a steady pace, HubSpot posted net losses of $24.4 million in 2011, $18.8 million in 2012, $34.3 million in 2013 and $16.3 million and $17.7 million for the six months ended June 30, 2013 and 2014, respectively. That’s not completely out of the ordinary for a pre-IPO company that makes most of its revenue through subscriptions, but it does mean HubSpot faces an uphill battle in a highly competitive industry.

In its S-1 filing, HubSpot was candid about the risks it faced, acknowledging its history of losses and the possibility that it may not achieve profitability in the future. It also identified the risk of its customers assembling a suite of individual point solutions for content marketing, web optimization, email and social media marketing instead of buying HubSpot’s all-in-one platform. Conversely, it’s also facing competition from the larger all-in-one marketing platforms,  such as Oracle, Salesforce and Adobe, who can achieve economies of scale faster.

From the S-1 filing:

Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we have, be able to devote greater resources to the development, promotion, sale and support of their products and services, have more extensive customer bases and broader customer relationships than we have, and may have longer operating histories and greater name recognition than we have. As a result, these competitors may be better able to respond quickly to new technologies and to undertake more extensive marketing campaigns. In a few cases, these vendors may also be able to offer marketing software at little or no additional cost by bundling them with their existing suite of applications.

Despite the less-than-rosy picture painted for investors, HubSpot did tout its strength as the only company that provides integrated inbound marketing solutions, particularly for midsize businesses. It also highlighted its status as an industry thought leader, based on the 1.5 million visits its marketing blog gets every month. Even if the profits aren’t there yet, HubSpot does have 11,500 customers all over the world, and that number is increasing. As with most subscription-based revenue models, we may not see the financial results of its growth until much later. The challenge for HubSpot is that it has to convince a Wall Street that has become too used to seeing soaring tech stocks and quick revenue turnarounds ala` Facebook and Twitter.

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