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cramer stock picks

Related AAPL 3 Best Ways To Invest In Driverless Car Technology Today Kevin O'Leary Is No Fan Of The iPhone: 'Apple Needs To Catch Up Now' Winning After A Fed Selloff – Cramer's Mad Money (5/18/16) (Seeking Alpha)

Apple Inc. (NASDAQ: AAPL) announced on Wednesday the creation of a new facility in Bengaluru, India, to support local developers in developing apps for the iOS platform.

Apple said that its development office will provide entrepreneurs and app creators with specialized support and “help them hone their skills.”

cramer stock picks: HubSpot, Inc.(HUBS)

Advisors’ Opinion:


    Cramer was bearish on Ferrellgas Partners (FGP) , Realty Income (O) , Synergy Pharmaceuticals (SGYP) , Avis Budget Group (CAR) and HubSpot (HUBS) .

  • [By Danny Vena]

    There’s another area being driven by AI that may surprise you. The next time you text your bank, cellphone service provider, or retailer, the agent you’re dealing with might be a chatbot. This form of conversational AI is being more widely adopted to perform simple customer service tasks. According to research conducted by marketing technology vendor HubSpot, Inc. (NYSE:HUBS), of 1,426 respondents worldwide, 74% had used voice search in the prior month, and 63% of people using services based on AI technology didn’t even know it.

cramer stock picks: NCI, Inc.(NCIT)

Advisors’ Opinion:

  • [By Elizabeth Balboa]

    Information technology company NCI Inc (NASDAQ: NCIT) reported its $283 million sale to H.I.G. Capital Management for $20 per share in cash.

    9. Allied World Assurance

    The insurance firms of Allied World Assurance Company Hldgs Ltd (NYSE: AWH) and Fairfax Financial extended the offering period for purchase of outstanding Allied World shares from June 30 to July 5.

cramer stock picks: MEI Pharma, Inc.(MEIP)

Advisors’ Opinion:

  • [By Chris Lange]

    MEI Pharma, Inc. (NASDAQ: MEIP) saw its shares make a solid gain on Thursday after the company received a crucial upgrade from Oppenheimer. Most analysts only issue price targets that are within a range of 5% to 25% for stocks, but this upgrade absolutely blows these small calls out of the water.

cramer stock picks: North American Energy Partners, Inc.(NOA)

Advisors’ Opinion:

  • [By Lisa Levin]

    In trading on Tuesday, energy shares slipped by 1.36 percent. Meanwhile, top losers in the sector included Northern Oil & Gas, Inc. (NYSE: NOG), down 9 percent, and North American Energy Partners Inc.(USA) (NYSE: NOA), down 6 percent.

cramer stock picks: Level 3 Communications, Inc.(LVLT)

Advisors’ Opinion:

  • [By Ben Levisohn]

    After opening up 0.6% this morning, Level Three Communications (LVLT) jumped as much as 5.9% on reports that it was considering ways to increase shareholder value (nudge nudge, wink wink, know what I mean?). Citigroup’s Michael Rollins and Neth Wiedemann offer their take:

    Online news source Benzinga recently tweeted that an industry source has told them Level 3 is “reviewing strategic alternatives to maximize holder value, including outright sale or large buyback”. Level 3 shares are up ~4% today after a ~3% move yesterday and shares are up ~10% over the past week. The company has not responded to the news, nor can we substantiate the speculation.

    Level 3 remains our top-pick within our coverage group given its growth, financial flexibility, valuation, and strategic optionality.Level 3 currently trades around ~10x our 2016 OIBDA estimate and ~11x our 2016 discretionary FCF estimate, which we believe is too cheap given its growth profile and deep strategic asset-mix of metro and long-haul fiber.

    We believe that Level 3′s extensive enterprise presence could be attractive for a cable player looking to move up-market and accelerate its investment from thesmall- to medium-sized businesses segment into the enterprise market. We also believe that Zayo Group Holdings (ZAYO) may be an attractive acquisition target for a cable company looking to accelerate an enterprise strategy. We also would not dismiss the possibility that Level 3 and Zayo could consider a merger scenario to become a larger competitor for the enterprise market against the incumbents AT&T (T) and Verizon Communications (VZ).

    Shares of Level 3 have gained 3.7% to $56.39 at 1:20 p.m. today, while Zayo Group Holdings has risen 1% to $28.78, AT&T has advanced 0.5% to $42.61, and Verizon Communications is up 0.7% to $55.87.

  • [By Benzinga News Desk]

    On Thursday afternoon, Wall Street Journal reported that CenturyLink (NYSE: CTL) was in advanced talks to merge with Level 3 Communications (NYSE: LVLT). Back on July 13, Benzinga Pro reported Level 3 was reviewing strategic alternatives.

  • [By Ben Levisohn]

    A rumored merger with CenturyLink (CTL) sent Level 3 Communications (LVLT) soaring to the top of the S&P 500 today.


    Shares of Level 3 Communications climbed 11% to $51.87 today, even as the S&P 500 declined 0.3% to 2,133.04. CenturyLink didn’t perform too badly, either: It gained 9.7% to $31.

top stocks now

Shah Gilani

Automated investment services – more commonly known as robo-advisory accounts – are relatively simple to understand, on the surface at least.

We talked about this last week – robo-advisories were created by millennials in response to the dot-com collapse, the financial crisis, and traditional fee-based advisory services.

But all is not what it seems. And if you dare dig into how they actually work, you’d be surprised by how complex they are.

Today, I want to show you how these services actually automate portfolio selection and perform rebalancing acts, and help you understand some of the complex portfolio management theories providers have to use.

Because what you don’t know can really hurt you – and you should know how your money is being managed.

Let me break it down for you…

top stocks now: AAON Inc.(AAON)

Advisors’ Opinion:


    Aaon Inc. (AAON) is an Oklahoma-based, family-owned and operated firm, with 23.54% insider ownership. It is an excellent business to own for the long term.

top stocks now: Plug Power Inc.(PLUG)

Advisors’ Opinion:

  • [By Scott Levine]

    Although Plug Power (NASDAQ:PLUG) reported some successes in bringing fuel-cell solutions to customers in 2016, the company’s stock certainly didn’t reflect it — ending the year down more than 40%. Remaining ever-optimistic, though, management is far from short on expectations for the coming year. But whether Wall Street appreciates the successes and sends the stock back north is a different story.

  • [By Peter Graham]

    A long term performance chart shows Ballard Power Systemsalong with alternative energy or fuel cell stock peers like small capsFuelCell Energy Inc (NASDAQ: FCEL), Hydrogenics Corporation (NASDAQ: HYGS) and Plug Power Inc (NASDAQ: PLUG) all peaking in 2014 before falling back to breakevenlevels or into underperformance:

  • [By Peter Graham]

    A long term performance chart shows shares of small cap FuelCell Energy along withalternative energy or fuel cell stocks like Ballard Power Systems Inc (NASDAQ: BLDP), Hydrogenics Corporation (NASDAQ: HYGS) and Plug Power Inc (NASDAQ: PLUG) all peaking in 2014 with some signs of stabilization early last year before they drifted a bit lower:

  • [By Dan Caplinger]

    Still, some stocks managed to buck the negative sentiment on Tuesday, and Sears Holdings (NASDAQ:SHLD), Plug Power (NASDAQ:PLUG) and Coeur Mining (NYSE:CDE) were among the best performers on the day. Below, we’ll look more closely at these stocks to tell you why they did so well.

top stocks now: eBay Inc.(EBAY)

Advisors’ Opinion:

  • [By Casey Wilson]

    In fact, just last week, even online retailer eBay Inc. (Nasdaq: EBAY) announced that brand-new items on its deals page will qualify for a price-match guarantee.

  • [By Daniel Sparks]

    FBA is “thriving,” Amazon said. FBA items shipped worldwide during the holidays increased 50%, highlighting the growing popularity of the service. To understand just how strong this growth rate is, consider that eBay’s (NASDAQ:EBAY) year-over-year growth in sold items on its platform was just 5% in the company’s most recently reported quarter. And eBay’s marketplace revenue in the company’s most recent quarter was up just 2% year over year. The big difference in the two company’s recent growth clearly shows how hot FBA is with sellers right now.

  • [By Douglas A. McIntyre]

    When Skype was launched in 2003, the notion that people could connect via video call was something new, particularly because the service was free. It was a time when long distance calls, particularly those made overseas, could still be expensive, and video call technology was not available to most people at all. The innovations of the product were great enough thateBay Inc. (NASDAQ: EBAY) bought the company for over $2.5 billion in 2005. That made it a father of the “unicorn” category. After it passed through other hands, Microsoft Corp. (NASDAQ: MSFT) paid $8.5 billion for it in 2011.

top stocks now: ADDvantage Technologies Group, Inc.(AEY)

Advisors’ Opinion:

  • [By Jim Robertson]

    Today, our Under the Radar Moversnewsletter suggestedshorting small cap cable television and telecommunications equipment stock ADDvantage Technologies Group, Inc (NASDAQ: AEY):

top stocks now: Endeavour Silver Corporation(EXK)

Advisors’ Opinion:

  • [By Lisa Levin]

    On Monday, basic materials shares surged by 1.1 percent. Top gainers in the sector included Cliffs Natural Resources Inc (NYSE: CLF) and Endeavour Silver Corp (NYSE: EXK).

  • [By Manikandan Raman]

    Citing bullish outlook on silver prices, Peter Bures of Canaccord Genuity has started coverage of four silver producers: Pan American Silver Corp. (USA) (NASDAQ: PAAS), Coeur Mining Inc (NYSE: CDE), Hecla Mining Company (NYSE: HL), and Endeavour Silver Corp (NYSE: EXK). The brokerage also assumed coverage of Fortuna Silver Mines Inc (NYSE: FSM) with a Buy rating.

  • [By Lisa Levin]

    In trading on Thursday, basic materials shares fell by 1.66 percent. Meanwhile, top losers in the sector included Endeavour Silver Corp (NYSE: EXK), down 22 percent, and Greif, Inc. (NYSE: GEF), down 10 percent.

  • [By Lisa Levin]

    Tuesday afternoon, the basic materials sector proved to be a source of strength for the market. Leading the sector was strength from Endeavour Silver Corp (NYSE: EXK) and DRDGOLD Ltd. (ADR) (NYSE: DRD).

top stocks now: HubSpot, Inc.(HUBS)

Advisors’ Opinion:


    Cramer was bearish on Ferrellgas Partners (FGP) , Realty Income (O) , Synergy Pharmaceuticals (SGYP) , Avis Budget Group (CAR) and HubSpot (HUBS) .

  • [By Danny Vena]

    There’s another area being driven by AI that may surprise you. The next time you text your bank, cellphone service provider, or retailer, the agent you’re dealing with might be a chatbot. This form of conversational AI is being more widely adopted to perform simple customer service tasks. According to research conducted by marketing technology vendor HubSpot, Inc. (NYSE:HUBS), of 1,426 respondents worldwide, 74% had used voice search in the prior month, and 63% of people using services based on AI technology didn’t even know it.

online day trading

Sandwich Generation GenXers talking to their parent about the future. Photo courtesy of Shutterstock.

Today’s 75.4 million Millennials will near retirement age in 30-40 years, and today’s GenXer in about 15-25 years. If you’re like many of my clients, you’re starting to seriously think about your own financial planning. And with so many Boomers ill-prepared for retirement, you’re not just having to think about your own financial well-being, but almost half of you will find yourself needing to help support your parents and other family members financially.

It pays to know what resources are available. Social Security pays for retirement, disability, and survivorship benefits through payroll taxes.  Many people only start thinking about it as they near retirement age, but early planning can help you maximize the amount of social security you receive. The Social Security system can be confusing, so be certain to discuss your personal situation w ith a financial advisor for individualized advice.

online day trading: 8×8 Inc(EGHT)

Advisors’ Opinion:

  • [By Peter Graham]

    A long term performance chart shows small cap magicJack VocalTec Ltd underperforming versus VOIP related peers Vonage Holdings Corp (NYSE: VG)and 8×8, Inc (NASDAQ: EGHT) which have been volatile, but have been heading higher:

  • [By Lisa Levin]

    Telecommunications services shares climbed 0.56 percent in trading on Thursday. Meanwhile, top gainers in the sector included Frontier Communications Corp (NASDAQ: FTR), and 8×8, Inc. (NASDAQ: EGHT).

  • [By Anders Bylund]

    Shares of 8×8 (NASDAQ:EGHT) rose 26.6% in 2016, according to data from S&P Global Market Intelligence.

    So what

    The provider of internet-based voice and communications services put together a remarkable financial record last year. 8X8 beat Wall Street’s earnings and sales estimates handily in each one of the year’s quarterly reports,citing strong organic revenue growth among larger customers along the way. Large-scale corporate customers accounted for 53% of the company’s total sales in the recently reported second quarter, and these big clients are also showing strong loyalty to the 8×8 brand by renewing their service contracts.

  • [By Peter Graham]

    A long term performance chart shows small cap magicJack VocalTec Ltd hitting lower highs and lowerlows for some years now but also leveling off while VOIP related peers Vonage Holdings Corp (NYSE: VG)and 8×8, Inc (NASDAQ: EGHT) have been volatile, but also largely heading higher:

online day trading: MDC Partners Inc.(MDCA)

Advisors’ Opinion:

  • [By Lisa Levin]

    MDC Partners Inc (NASDAQ: MDCA) shares dropped 60 percent to $3.38. MDC Partners reported a Q3 loss of $0.64 per share on revenue of $349.3 million.

  • [By Lisa Levin]

    Shares of MDC Partners Inc (NASDAQ: MDCA) were down 31 percent to $12.52 after the company posted downbeat quarterly results and lowered its FY16 sales outlook.

online day trading: American International Group Inc.(AIG)

Advisors’ Opinion:

  • [By Ben Levisohn]

    BMO’s Charles Sebaski explains why he upgraded American International Group (AIG) to Outperform from market Perform:

    Agence France-Presse/Getty Images

    AIG has been trading at discount to its tangible book given its mid-single digit return profile; however, we expect AIGs valuation to keep increasing with its improving return profile. We are now forecasting AIG to generate a 9.9% operating return on tangible common equity (ROtE) in 2018, which would be a 450 bp improvement from 2016. A double-digit return profile warrants the 1x multiple that we are applying to its tangible book value per share. While we expect AIGs return profile to benefit from lower taxes, we also expect the companys life and retirement business to improve from the rising interest rates as those spread businesses are more interest rate sensitive than the P&C business. That said, we expect continued improvement on both the loss and expense sides of the P&C as contributing factors to the ROtE improve.

    BMO also upgraded Arch Capital Group (ACGL), Brown & Brown (BRO), and Travelers (TRV).

    Shares of American International Group have declined 0.4% to $65.60 at 3:36 p.m. today, whileArch Capital Group has gained 2% to $87.90,Brown & Brown has advanced 0.5% to $44.65, andTravelers has risen 1.3% to $120.79.

  • [By Dan Caplinger]

    Wednesday was yet another record-setting day for the stock market, as the Dow climbed triple digits and the S&P 500 and Nasdaq Composite followed the venerable average to unprecedented heights. Economic data showing rising inflation made it more likely that the Federal Reserve will look to boost interest rates at its next Federal Open Market Committee meeting next month, and the ripples throughout the bond market sent many investors to consider stocks instead. Yet despite the substantial rally, some stocks missed out on the move higher, and American International Group (NYSE:AIG), Teck Resources (NYSE:TECK), and Movado Group (NYSE:MOV) were among the worst performers on the day. Below, we’ll look more closely at these stocks to tell you why they did so poorly.

  • [By Ben Levisohn]

    American International Group (AIG) tumbled to the bottom of the S&P 500 today after its earnings fell well short of the Street consensus.

    Agence France-Presse/Getty Images

    AIG dropped 8.9% to $60.85 today, while the S&P 500 gained 0.5% to 2,349.25.

    Yes, AIG’s earnings were bad. It reported an operating loss of $2.72 a share, missing forecasts for a profit of 42 cents, according to Bloomberg. And it didn’t help that John Paulson’s Paulson & Co. cut its stake in the insurer.

    You’ll notice the forecast is different than what it was in my earlier post on AIG–and an AIG spokesperson even reached out to tell me that the consensus, at least according to FactSet, should had been for a loss of 61 cents a share. Why the confusion? RBC’s Mark Dwelle and Scott Heleniak have your answer:

    In reporting results AIG has recast all of its business segments, transferring various pieces to a Legacy unit, reallocating corporate expenses and net investment income as well as making some changes as to what is included within operating income, the most notable of which is that loss reserve discount effects in U.S. Commercial Insurance (and the Legacy unit) are now excluded from Operating Income. Accordingly, comparisons to prior reported results, and to some extent our 4Q16 estimates, require some reconciliation.

    Macquarie’sAmit Kumar considers the bull and bear cases on AIG:

    On 2/14, after market close, AIG reported a Q4 operating loss of $2.72 per share vs. our estimate of a $0.52 loss and street consensus of a $0.54 loss. Results are not directly comparable to street consensus due to lack of unanimity in terms of reserve adjustment estimates. Results included a higher than estimated $5.6 billion or $3.56/share of adverse development. The company had previously announced the possibility of a material reserve charge in the quarter. The bulls on the stock would note that this quar

online day trading: HubSpot, Inc.(HUBS)

Advisors’ Opinion:

  • [By Danny Vena]

    There’s another area being driven by AI that may surprise you. The next time you text your bank, cellphone service provider, or retailer, the agent you’re dealing with might be a chatbot. This form of conversational AI is being more widely adopted to perform simple customer service tasks. According to research conducted by marketing technology vendor HubSpot, Inc. (NYSE:HUBS), of 1,426 respondents worldwide, 74% had used voice search in the prior month, and 63% of people using services based on AI technology didn’t even know it.


    Cramer was bearish on Ferrellgas Partners (FGP) , Realty Income (O) , Synergy Pharmaceuticals (SGYP) , Avis Budget Group (CAR) and HubSpot (HUBS) .

Best China Stocks To Invest In 2017

Stocks soared to new highs this week despite getting a slow jump out of the gate.

Getty Images

The S&P 500 advanced 0.8% this week after rising 0.4% to2,316.10 today, while the Dow Jones Industrial Average rose 1%this week after gaining 96.97 points, or 0.5%, to20,269.37 today. The Nasdaq Composite climbed 1.2% this week after advancing 0.3% to5,734.13 today.

Evercore ISI’s Dennis DeBusschere and team note that the reflation trade has revived a bit:

Downward pressure on reflation trades has eased over the past few days as the new administrations relationship with China improves and Trump announced that a plan to cut corporate taxes will be introduced over the coming weeks. In addition, despite the pressure on Financials and cyclicals globally, we do not expect a return to investors pricing in secular stagnation. Additionally, during the precipitous rise of headline CPI over the past year, core inflation has been flat allowing core real rates to move significantly higher. That increase in real growth expectations is a support for cyclical trade momentum. With commodity price gains stalling, inflation gains should slow allowing real growth to continue to improve. The macro influence on S&P returns has weakened since 4Q as the outlook for global growth has firmed and investors began to focus less on changes in macro factors and more on industry/company fundamentals. That shift lays the groundwork for longer term s ector/industry/factor trends rather than the consistent mean reversion that has been common over the past few years as the outlook for growth was trending lower.

Best China Stocks To Invest In 2017: Interactive Brokers Group, Inc.(IBKR)

Advisors’ Opinion:

  • [By Lisa Levin] Gainers Trevena Inc (NASDAQ: TRVN) rose 10.8 percent to $3.60 in pre-market trading after dropping 4.97 percent on Wednesday. Yum China Holdings Inc (NYSE: YUMC) rose 10.2 percent to $31.05 in pre-market trading after the company reported upbeat earnings for its first quarter. Seres Therapeutics Inc (NASDAQ: MCRB) rose 9.1 percent to $11.39 in pre-market trading after dropping 5.26 percent on Wednesday. Plug Power Inc (NASDAQ: PLUG) rose 8.9 percent to $2.45 in pre-market trading after surging 73.08 percent on Wednesday. Coach Inc (NYSE: COH) rose 6.7 percent to $41.98 in pre-market trading. Coach named Ian Bickley as President, Global Business Development and Strategic Alliances. Sapiens International Corporation N.V. (NASDAQ: SPNS) shares rose 6.1 percent to $13.91 in pre-market trading after gaining 0.54 percent on Wednesday. Jazz Pharmaceuticals plc (NASDAQ: JAZZ) rose 6.1 percent to $149.15 in pre-market trading. Jazz Pharma reached a settlement with Hikma Pharma related to Xyrem patent case. Mizuho downgraded Jazz from Buy to Neutral. Interactive Brokers Group, Inc. (NASDAQ: IBKR) shares rose 6 percent to $36.72 in pre-market trading after declining 0.03 percent on Wednesday. Rewalk Robotics Ltd (NASDAQ: RWLK) rose 5.3 percent to $2.00 in pre-market trading after the company disclosed that the U.S. Department of Veterans Affairs purchased 28 added Exoskeleton Systems. Merrimack Pharmaceuticals Inc (NASDAQ: MACK) rose 5.1 percent to $3.29 in pre-market trading. Merrimack declared a $1.06 special dividend. BioTime, Inc. (NYSE: BTX) shares rose 4.8 percent to $3.50 in pre-market trading. BioTime, reported the formation of new subsidiary AgeX Therapeutics, Inc. Akari Therapeutics PLC (ADR) (NASDAQ: AKTX) shares rose 4.8 percent to $12.26 in pre-market trading after gaining 0.69 percent on Wednesday. Bed Bath & Beyond Inc. (NASDAQ: BBBY) rose 3.6 percent to $39.15 in pre-market trading after the company posted better-than
  • [By Travis Hoium]

    The ups and downs of revenue and earnings atInteractive Brokers Group, Inc. (NASDAQ:IBKR)struck again in the first quarter of 2017. Trading and market making were down versus a year before,but the company still reported a profit and is making long-term adjustments that could make the business more profitable for investors.

Best China Stocks To Invest In 2017: Advance Auto Parts Inc(AAP)

Advisors’ Opinion:

  • [By Lee Samaha]

    The key issue to focus on is automotive group comparable sales, which can be seen in the chart below. I’ve also included the most directly applicable sales numbers for its peers,O’Reilly Automotive Inc (NASDAQ:ORLY), AutoZone, Inc (NYSE:AZO) and Advance Auto Parts, Inc. (NYSE:AAP). The disappointing sales performance of Advance Auto Parts is largely due to the effects of integrating a troublesome acquisition.

  • [By Ben Levisohn]

    Advance Auto Parts (AAP) surged to the top of the S&P 500 today after releasing better-than-expected third-quarter earnings.

    Getty Images

    Shares of Advance Auto Parts gained 15% to $164.33, while the S&P 500 rose 0.8% to 2,180.39.

    Credit Suisse analyst Seth Sigman and team explain why shares of Advance Auto Parts are soaring:

    Advance Auto Parts’ Q3 and strategic update was one of the better scenarios for this stock with better than expected comps, positive commentary on Q4, a roughly in line 2017 outlook, and a new sense of direction on how this new management team will narrow the margin gap with peers. Management guided to a 500 bps long-term margin improvement, which wasnt a surprise to investors, and other specifics were still limited. However, timed with Q3/4′s improvement, this should help instill some early confidence in this team. We are adjusting our 2016 and 2017 EPS modestly, to $7.30 (from $7.23) and to $7.65 (from $7.60) respectively.

    Advance Auto Parts market capitalization rose to $12.1 billion today from $10.7 billion yesterday.

Best China Stocks To Invest In 2017: HubSpot, Inc.(HUBS)

Advisors’ Opinion:

  • [By Danny Vena]

    There’s another area being driven by AI that may surprise you. The next time you text your bank, cellphone service provider, or retailer, the agent you’re dealing with might be a chatbot. This form of conversational AI is being more widely adopted to perform simple customer service tasks. According to research conducted by marketing technology vendor HubSpot, Inc. (NYSE:HUBS), of 1,426 respondents worldwide, 74% had used voice search in the prior month, and 63% of people using services based on AI technology didn’t even know it.


    Cramer was bearish on Ferrellgas Partners (FGP) , Realty Income (O) , Synergy Pharmaceuticals (SGYP) , Avis Budget Group (CAR) and HubSpot (HUBS) .

HubSpot: How Much Is This Leader In The Marketing Automation Space Worth?

HubSpot-Doing many things right

HubSpot (NYSE:HUBS), 11 months after a wrote my first article on the name, is almost certainly the real McCoy when it comes to its business model. Not particularly because the shares have seen major appreciation, although it has appreciated by a bit over 50% this last year. But it has seen its business grow as fast as any of its peers in the marketing automation space and has made some notable progress on its path toward profitability.

HubSpot has been able to achieve strong results in a very crowded niche. Just a few of its competitors include Oracle (NYSE:ORCL) which owns Eloqua, Pardot, Marketo, Adobe (NASDAQ:ADBE), Salesforce (NYSE:CRM), Infor, IBM (NYSE:IBM) which offers Silverpop, and Callidus (NASDAQ:CALD). And the space itself, while of decent size, is certainly not one of the giant opportunities of the software world. The latest surveys, a couple of which are linked here suggest the market size is about $6 billion-plus and that the CAGR is no more than 10%.

For the most part, it is easier writing about companies that are growing strongly in red hot spaces. When I write about Shopify (NYSE:SHOP), it is pretty straightforward in that they dominate a market segment that clearly is on a high growth trajectory and which is just in its infancy.

Marketing automation has been around for several years and many of the solutions seem to mimic each other. HUBS itself is more than a decade old at this point. While I doubt that saturation has arrived, the concept of marketing automation is used to refer to solutions that are in use at most large enterprises and a significant proportion of medium sized business in this country. There are, to be sure, factors that differentiate competitors and competition, especially in the SMB sector where the ultimate decision usually comes down to some specific piece of functionality as much as price. But I think it is fair to say that these days, it is far more difficult, as an analyst, to forecast that one or the other companies in the space will stand out and achieve hyper-growth for some years to come. The fact that HubSpot is doing just that deserves some more in-depth analysis and evaluation.

Another great quarter – but what’s to come?

HubSpot reported the results of its fiscal Q1 earlier this month. The results were considered an upside surprise and the shares appreciated 8% at the time. They have since retraced the entire move and are now below the price they were before the earnings were reported and guidance was raised.

The company’s results as will be outlined below were ahead of expectations pretty much across the board. The company had forecast $79 million in quarterly revenue and beat that expectation by 4%. The company showed a fair amount of operating leverage and essentially all of the revenue beat dropped to the bottom line. The company forecast revenues and EPS marginally ahead of the prior consensus for Q2. The company has beat expectations significantly over the past year and there is little reason to believe that guidance for this quarter will not be exceeded. The guidance for the year is probably more conservative than realistic. The company’s new full-year revenue guidance shows no upside beyond the Q1 beat and the modestly improved Q2 forecast. Revenue growth is supposed to fall from 40% in Q1 to 32% this quarter producing just a 3.5% sequential quarter revenue increase. Percentage growth year on year is supposed to fall further in both fiscal Q3 and Q4.

The company raised its earnings expectations, but again primarily as a function of the company’s Q1 beat and Q2 raise. It has basically not seen fit to increase expectations beyond mid-year despite what appears to be solid sales momentum and some visible expense discipline.

Subsequent to the earnings release, the company announced that it was selling $350 million of a convertible secu rity. The conversion price of the new offering was $94 and the interest rate is 0.25%. In commenting about financial numbers, I will ignore the convertible offering. The dilution is not relevant given the significant conversion premium and the interest rate is so low that interest payments will not move the company’s incomeunless of course, the company is able to make an acquisition, presumably the rationale for selling the debt.

In any event, the company reported 40% revenue growth in Q1, almost all of it within its subscription revenues. The company posted a 700-basis point improvement in the GAAP operating loss ratio which fell by 20% in dollars and reached 9.6% of revenue compared to 16.7% in the year earlier period.

Looking at some of the details: Subscription gross margins improved by 150 bps year on year. The company made some progress in terms of operating expense but surely has much further to go. Research and development spend increased by almost 3 7% year on year but the spend ratio for that expense fell by about 47 bps. General and administrative costs increased by 33% year on year and general and the administrative expense ratio fell by 45 bps. While research and development costs might be considered to be at relatively normal levels at 16% of revenues, the cost of general and administrative expense which is also 16% is far higher than might be expected for a subscription IT company.

The most significant opportunity however relates to sales and marketing expenses. As mentioned. marketing automation is a very crowded space occupied by all kinds of vendors, some of them much larger in size than HubSpot. The company spends a lot on sales and marketing because it needs to spend lots on sales and marketing just to get its message across to potential buyers in a very crowded environment with lots of countervailing and unprovable claims.

Last quarter, sales and marketing spend grew by 33% year on year, substa ntially less than revenue growth. As a result, the sales and marketing GAAP spend ratio declined from almost 60% to 57%.

The company reported a very modest non-GAAP operating margin of 1.6% due to the dollar increase in stock based comp expense. As a ratio, however, stock based comp expense was essentially consistent with the prior year level at 11% of total revenues.

The company showed far greater cash flow generation than it has had in the recent past. About two-thirds of the improvement was based on balance sheet items. The balance was a product of a smaller GAAP loss coupled with greater stock-based comp.

The investment merits – and demerits – for a company like this

Hubs shares, while hardly outliers in terms of valuation, are certainly not in the value category either. The company will need to beat consensus estimates in order to see rising share price targets and rising share values. At the moment, that seems likely given the guidance that the company has provided and its acceptance by analysts in forming the consensus.

The company has 36.2 million shares currently outstanding and a current share price of $66.70. That produces a current market cap of $2.4 billion. Its current balance sheet shows a net cash balance of about $160 million thus yielding an enterprise value of $2.25 billion. With current year sales forecast at $358 million, the EV/S metric comes to 6.2X.

The business issues for this company are pretty straightforward. For how long can the company sustain a differentiated and strong revenue growth rate and how rapidly can the company’s business model evolve? The company despite headlines to the contrary really did little in terms of guidance to suggest answers to those questions as part of its Q1 release and that is perhaps why the shares have retraced their initial advance. Company guidance, mirrored in the published First Call consensus forecast, modestly raised expectations in terms of revenues and earnings for this current quarter, but left expectations for the balance of the year consistent with prior consensus expectations.

The sequential growth the company is forecasting is quite minimal and the growth in earnings from Q1 to Q2 and beyond is actually negative.

The first question during the course of the conference call related to the sustainability of growth in the context of a marketing automation market that has been expanding far more slowly than Hubspot’s revenues. The answer was not terribly explicit.

One of the growth concerns for this company involves the success it might have selling a standalone CRM solution. The tool itself is free. Revenue generation comes based on the user purchases of users typically sign up to use HubSpot’s SalesPro which costs $50/month and users also tend to purchase additional products on their HubSpot Growth Stack marketing platform. There have been early signs of success, but nothing that is terribly quantifiable at the moment. One reason why I believe that the growth compression expectations embodied in the consensus are unlikely has to do with the CRM opportunity and the opportunity the company has with some of its other product initiatives, particularly what it calls One HubSpot, which is a platform approach to the company’s product portfolio. Again, there is nothing to which I can point in the numbers that have been released or discussion on the conference call – it is more about emanations and penumbras so to speak. One HubSpot is a relatively recent initiative and has yet to be tested in terms of its wide-scale deployment but early results seem to be encouraging.

One number of significance for a company such as this focused on the SMB space is churn. The company defines churn based on revenue retention rather than customer retention and that metric climbed to above 100%. The company is moving toward re-defining the churn metric although given the pr oduct line extension, it is likely to be a distinction without a difference.

The company focused on sales productivity during the call and how it could evolve its sales effort to better mimic what it describes as the “light touch” model that is used by companies such as Shopify. This lighter touch paradigm is the strategy the company has for reducing the huge burden it carries in terms of sales and marketing spend. Part of the lighter touch strategy includes the use of a freemium model coupled with an emphasis on both cross-selling and on focus on what the company calls its marketing starter kit.

I don’t want to suggest that I have anything close to second sight. But I think that the combination of product launches, selling strategy and just a good time in which to be selling marketing automation solutions to the SMB space has been under-estimated in forward guidance and the consensus forecast. And if, indeed, the sales strategy works, then it is almost inevita ble to believe that the company will drop a substantial portion of its incremental revenues to the bottom line as was the case in Q1. Most of these are expectations at the margin. Add a few million to revenue expectations this quarter and build on that foundation. Expect a significant proportion of the sales overage to drop to the bottom line as was the case in Q1. These are not very outlandish expectations. But it is those kinds of high odds expectations that I think will propel the shares significantly.

Why is this happening?

I think if you invest in shares at this point, you are basically investing in the company’s concept of in-bound marketing compared to the traditional outbound paradigm. I wrote about the features of that paradigm when I first published an article on this site back a year ago. It hasn’t changed although the addition of a CRM solution enhances both the business model of the company and the attraction it has for customers, overall. I have l inked to a description of what is involved in creating an inbound marketing solution. Vying for attention is hard. This is a strategy that apparently works and which is not the same as that offered by all of the other companies in the space.

The approach is quite a bit different than using cold calls, regardless of how well the target market has been refined by targeting tools. All of this material is obviously a bit of hype and I do not want to pretend that I have road tested it at this point. I most likely will, but I am happier to look at testimonials, the buying behavior of the installed base and the company’s growth record as validation points that suggest that this is a strategy that has seen success. Without trying to be a commercial for what this company does, its solution is clearly more relevant and less interruptive than typical marketing strategies, even those based on digital engagement

Most recently, the company has begun to offer a free CRM tool. Most of these freemium adventures have their glitches but it is an interesting way to distinguish HUBS from its competitors. The free product is quite basic but it serves the needs of the HUBS base adequately and significantly enhances “stickiness” and adds to overall average revenue per user. It is part of the process in building product differentiation to protect the company’s inbound marketing franchise.

While the overall marketing automation space isn’t huge as these things are measured, it represents a huge opportunity for a company that is doing less than $400 million of annual revenues. The CRM space, as linked here, is quite a bit larger than what is called marketing automation and produces a very substantial TAM for this company. I don’t think that looked at holistically, this company has any lack of available market space in which to grow and it appears to have a successful strategy for pursuing the opportunity.


Like many companies t hat are experiencing rapid growth, valuing HubSpot is not a science and I think the use of price targets in this case cannot be readily defended. I think that this company has built a considerable moat and offers a differentiated solution in its space. I think that the company ought to be able to continue to achieve growth at above the rates in its category for several years. As mentioned, I think that the reversion to the mean that has been forecast is at a pace far greater than is likely to happen. The company is still on the upside of the curve for several of its most recent product initiatives. The environment for selling marketing automation software remains very positive. The company has a very reasonable set of sales strategies that should improve the efficiency of its ability to generate new name accounts.

The consensus is looking for 32% growth this year and 25% next year. It is based on a particularly peculiar rate of sequential quarterly revenue growth that seems unlikely. I am inclined to think that the set-up provides a strong opportunity for the company to beat all of the next three quarters that it has forecast and to achieve full year growth of 35% and to achieve growth in 2018 that reaches above 30% again. It seems likely to me that the recent convertible offering will be used to fund some acquisitions further boosting growth. I would be surprised if the company did not reach at least $500 million in revenues by the end of 2018 as a run rate which means that its EV/S at this time for that period is really just a bit over 4X, a reasonable metric for a company with a definable and defensible competitive moat.

Investors do not buy this company based on current earnings estimates but on the path to profitability that the company has laid out. Management has spoken to the point that its product gross margins have most likely reached an asymptote and based on the experience of many other companies in the space that seem s likely. Improving services margins also seems likely and this is not going to have a major impact on profitability.

The big numbers are going to come from reducing the costs of sales and marketing and general and administrative cost meaningfully. At scale, and by that I mean above a $500 million revenue run rate with management planning for top line growth of between 20%-25%, there ought to be at least 2000 basis points of available margin enhancement at a reasonable level of execution. That would take pre-tax profits to $100 million-plus and presumably would yield more than $70 million in net earnings. I think expecting that the company can generate $2.00/share in GAAP income by 2019 is indeed what the valuation of this company is based on.

I think the transition the company is making to a part freemium sales model is one in which the company is essentially replacing direct sales and marketing spend with what are arguably product demos. It has the potential for the company to disrupt the CRM space in the SMB world and to generate customer acquisition for paid products above rates than HUBS has sustained in the past.

The company will probably continue to spend 16%-19% of its revenues on research and development. It gets meaningful leverage by investing in products and with its lighter touch sales model it makes even more sense to accelerate product development.

While the company generated a noticeable level of cash flow in Q1, that is unlikely to be representative for the year as a whole. Much of the cash generation related to seasonal balance sheet impacts that are very unlikely to be repeated going forward. The company will be consistently able to over-achieve cash flow because of its business model. It bills its core product one year in advance and assuming the number of users rise and the annual revenue per paying user also increases, deferred revenue will increase consistently. I assume that over the next two years-plus the company will reach free cash generation of more than $150 million/year. That is another element in suggesting that despite what looks to be an extended valuation HUBS shares have significant upside.

At the moment, HUBS shares are reasonably well loved by analysts. The average rating published on First Call is 1.8, which is between buy and strong buy. There are only four hold ratings out of 21 published estimates – the balance are buys and strong buys.

As mentioned earlier, the Q2 set-up seems quite reasonable for investors with sequential revenues forecast to increase just 3.5% in a seasonally strong quarter and with earnings forecast to be less than Q1. That simply doesn’t appear to be a reasonably likely scenario based on previous seasonality and I think the quarter will ultimately be another quarter of beat and raise.

There are many entrants vying for attention in the marketing automation space. I think HUBS has one of the better chance s of becoming a substantial presence due to its differentiated solution that seems to have been widely accepted by a significant cohort of users. The shares have done well over the last year and I believe it can continue to show positive alpha going forward.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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