Earnings Call Transcript
HUBSPOT INC (HUBS)
Earnings Call Transcript - HUBS Q4 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by, and welcome to the HubSpot Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Chuck MacGlashing, Head of Investor Relations. Thank you. Please go ahead.
Chuck MacGlashing, Head of Investor Relations
Good afternoon, and welcome to HubSpot’s Fourth Quarter and Full Year 2020 Earnings Conference Call. Today, we’ll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Brian Halligan, our Chief Executive Officer and Chairman; and Kate Bueker, our Chief Financial Officer. Before we start, I’d like to draw your attention to the Safe Harbor statement included in today’s press release. During this call, we’ll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are forward-looking statements, including those regarding management’s expectations of future financial and operational performance and operational expenditures, expected growth and business outlook, including our financial guidance for the first fiscal quarter and full year 2021. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today’s press release and our Form 10-Q, which was filed with the SEC on November 5, 2020, for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations. During the course of today’s call, we’ll refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between such measures can be found within our fourth quarter and full year 2020 earnings press release in the Investors section of our website. Now, it’s my pleasure to turn over the call to HubSpot’s CEO and Chairman, Brian Halligan.
Brian Halligan, CEO
Thanks, Chuck. Good afternoon, folks. Thank you for joining us today to review HubSpot’s fourth quarter and full year 2020 earnings results. I’m exceptionally proud of how the HubSpot team closed out the year. In Q4, we saw a nice reacceleration in revenue growth of 35% year-over-year. During the quarter, we surpassed 100,000 customers. And in December, we crossed $1 billion in ARR, two terrific milestones on which to end the year. So, what’s behind this reacceleration in growth? Well, this unusual year opened up everyone’s eyes to just how early we still are in the digital transformation of the economy. This is the trend we’ve been seeing for 14 years, and it was sped up for obvious reasons this year. New startups we work with, while they’re born digital, older scaleups we work with who may have only been partially online in the past, have begun to fully digitize their end-to-end experience. HubSpot has the ideal platform to enable all these companies to build delightful modern experiences for their customers. Another trend we’ve seen is a shift in the market’s expectations for B2B software. People now expect it to work like the consumer software they use in their personal lives. Traditional enterprise CRMs are cobbled together through lots of acquisitions, and the resulting user experience is pretty rough. Our CRM is crafted internally with a consumer-like UI matched with a scalable enterprise back end. This approach is resonating very well in the marketplace. All of our products in all of our geographies performed well in Q4. In particular, we saw strong growth in our enterprise tier. This year, we launched our Marketing Hub Enterprise product, our CMS Hub Enterprise product, and our Sales Hub Enterprise products. These all did well individually in the market. But, the thing that really stood out was the number of companies buying two or more of our hubs, taking advantage of having their entire go-to-market on one platform with one data model, one representation of their customer, and one user interface. We’re super pleased that our unique approach was recognized just the other day when HubSpot was named the number 2 Best Global Software Seller according to user reviews on G2 Crowd. We were wedged right between Microsoft and Zoom. So, much has changed about the relationship between companies and their customers this year, and so much opportunity still lies ahead. After a strong finish to the year, the team is more motivated than ever to help our customers create remarkable end-to-end customer experiences and grow better in 2021. With that, I’ll hand it over to Kate.
Kate Bueker, CFO
Thanks, Brian. Let’s turn to our fourth quarter and full year financial results, and our guidance for the first quarter and full year of 2021. Fourth quarter revenue growth reaccelerated to 32% year-over-year in constant currency and 35% as reported. Q4 subscription revenue grew 36% year-over-year, while services revenue increased 9% year-over-year on an as-reported basis. Full year 2020 revenue grew 30% in constant currency and 31% as reported. Full year subscription revenue grew 32%, while services revenue grew 5%, again both as reported. We saw strong demand across all of our hubs in Q4, resulting in a reacceleration in new business growth, along with record customer dollar and net revenue retention rates. In Q4, we added 8,400 net customers, ending 2020 with nearly 104,000 total customers, up 42% year-over-year. Average subscription revenue per customer of nearly $9,800 was up slightly sequentially but down a few points year-over-year. Domestic revenue grew 27% in Q4, while international revenue growth was 40% year-over-year in constant currency and 47% as reported. International revenue represented 44% of total revenue in Q4, up 3 points year-over-year. Deferred revenue as of the end of December was $317 million, a 35% increase year-over-year. Calculated billings were $309 million in Q4, growing 38% year-over-year in constant currency and 43% as reported. This reacceleration in constant currency billings growth was driven by strong revenue performance and a positive mix shift toward Professional and Enterprise subscriptions in the quarter. The remainder of my comments will refer to non-GAAP measures. Fourth quarter and full year gross margins were 82% flat year-over-year. Subscription gross margin was 85%, while services gross margin was negative 20%. Fourth quarter operating margin was 10%, up slightly compared to the same period a year ago, as a result of our strong revenue performance in the quarter. Full year operating margin was 8%, flat year-over-year. We invested aggressively in our business over the last year to meet the significant demand for our products and drive innovation to fuel long-term growth. We plan to continue this investment approach in 2021. At the end of the fourth quarter, we had 4,225 employees, up 25% year-over-year. Net income in the fourth quarter was $20 million, or $0.40 per diluted share. Net income for the full year was $64 million or $1.32 per diluted share. CapEx, including capitalized software development costs, was $15 million or 6% of revenue for the fourth quarter and $59 million or 7% of revenue for the full year. Free cash flow in the fourth quarter was $46 million or 18% of revenue, and $79 million or 9% of revenue for the full year. Finally, our cash and marketable securities totaled $1.3 billion at the end of December. And with that, let’s dive into guidance for the first quarter and full year of 2021. For the first quarter, total revenue is expected to be in the range of $260 million to $265 million, up 32% year-over-year at the midpoint. Non-GAAP operating income is expected to be between $17 million and $19 million. Non-GAAP diluted net income per share is expected to be between $0.28 and $0.30. This assumes 50.3 million fully diluted shares outstanding. And for the full year of 2021, total revenue is expected to be in the range of $1.16 billion to $1.17 billion, up 32% year-over-year. Non-GAAP operating income is expected to be between $98 million and $102 million. Non-GAAP diluted net income per share is expected to be between $1.51 and $1.59. This assumes 50.7 million fully diluted shares outstanding. As you adjust your models, keep in mind the following. At current spot rates, we’re forecasting an FX tailwind to as-reported revenue of 4 points in Q1 and 3 points for the full year. As many of you are aware, we will have some unusual year-over-year growth comparisons in 2021. With that in mind, I thought it would be helpful to provide some additional color on how we’re thinking about the cadence of growth throughout 2021. We anticipate revenue growth of 35% in the first half of the year, followed by revenue growth of 30% in the second half of the year as comparisons become more difficult. Our 2021 guidance assumes flat operating margin year-over-year. Embedded in that guidance, we have assumed a healthy level of investment across the business to meet the market demand we’re seeing, more normal levels of T&E expense in the back half of the year, and continued strong investment in R&D. Lastly, we expect CapEx as a percentage of revenue to be about 5% in 2021 and free cash flow to be about $130 million, with seasonally stronger free cash flow in Q1 and Q4. And with that, I’ll hand the call back over to Brian for his closing comments.
Brian Halligan, CEO
Thanks, Kate. Those numbers reflect how nicely our customer flywheel is spinning. Well, our employee flywheel is spinning nicely, too. We were just recognized as the Fourth Best Place to Work in 2021 by Glassdoor. Last month, Comparably also highlighted HubSpot as being the number 1 Best Workplace for Women and a Top Place to Work for Parents. We endeavored not just to talk the talk on diversity inclusion but walk the walk. We have a variety of initiatives underway, but two new ones I’m particularly proud of are our $20 million commitment to social impact investing in a new partnership with Howard University, which established a new Center for Digital Business on their campus. The difficult years are always the ones that define you, and I’m grateful to every HubSpotter and our partner community for the way we all pulled together to end the year strong and start 2021 with momentum. I’m super grateful to the 100,000 customers who put their trust in us. Thank you for your time. Operator, let’s open up the call for a few questions.
Operator, Operator
Your first question comes from Mark Murphy from JP Morgan.
Mark Murphy, Analyst
Thank you. And congrats on a great finish to the year. So, Brian, I have noticed what you pointed out that G2 Crowd had ranked Microsoft, HubSpot, and Zoom as the top three software companies for 2021. I thought that was pretty amazing. I’m wondering when we see that kind of prioritization that you’re getting, should we assume that marketing budgets are going to shift pretty quickly to digital and to inbound this year? Is that embedded in your assumption, or do you see those signs, or is it more to do with the surge you’ve had in the starter cohorts? And maybe we’re going to see that converting this year?
Brian Halligan, CEO
Hey Mark, thanks for your question. I was super pleased to see that sort of sandwiched between two terrific software companies, Zoom and Microsoft. And I think it’s just a reflection of a lot of the bets we’ve made over the last couple of years. Products just gotten way better, our customers are way happier, and they’ve given us really good reviews there on G2. So, really happy about it. In terms of the second part of your question, I mean, things are good. I mean, we’re seeing nice momentum kind of across all three tiers of the product, the Enterprise, the Pro, and the Starter, and across kind of all the geographies. So, feeling good. Things are going well. Thanks for your question.
Mark Murphy, Analyst
And I had a quick follow-up for Kate. I was just wondering if you see much of a structural change for your real estate costs and your T&E levels in the post-pandemic world. I think, you said in the second half that T&E will normalize a bit. But, if you have more people working a bit more remotely, is it possible that there’s an extra point or two of margin coming out the other side of this, or do you kind of prefer to reinvest that?
Kate Bueker, CFO
I think, the theme that you will hear over and over from us is that we believe there’s a ton of opportunity ahead and that we’re going to continue to reinvest in the business. And so, that’s the comment that I would make generally. We are, as you pointed out, assuming that we are largely remote, at least for the first half of the year. There are some modest assumptions that we get back to travel at some point over the course of 2021. But, it doesn’t have a dramatic impact on our operating margins for the year.
Operator, Operator
Your next question comes from Samad Samana from Jefferies.
Samad Samana, Analyst
Congrats on this very strong finish to the year. Kate, maybe one for you and then one for Brian. But first, Brian mentioned crossing a $1 billion ARR mark. And that implies a pretty significant acceleration I think in back half bookings, especially in the fourth quarter. Can you help us maybe understand how net retention looked and how that impacted it versus new customer bookings?
Kate Bueker, CFO
Yes. The positive news is that we had excellent updates regarding both aspects. Regarding retention, I mentioned earlier that we achieved a record quarter for retention, and what I find encouraging is that there are many factors working together to improve retention. We began with achieving record customer dollar retention, and our upgrade rates are also setting new records. Specifically, we are noticing strong performance in the addition upgrade area.
Brian Halligan, CEO
Yes. I’ll just add that some of the investments we made are really paying off. Our Net Promoter Score, which we’ve focused on for a couple of years, significantly increased over the past year, indicating that these investments are indeed effective. Additionally, graduation rates show that companies growing from around 300 employees to 3,000 often transition away from us. However, the enhancements we’ve added to our platform are clearly translating into longer customer retention and satisfaction with the new advanced capabilities.
Samad Samana, Analyst
Brian, this leads me to a relevant follow-up question. I wanted to ask about your impressive achievement of surpassing the $1 billion market. Looking ahead to reaching $2 billion, considering the current environment, should we expect any changes, or do you think the existing strategy can naturally help propel you to the $1.5 billion level, particularly with the investments planned for 2021 to support that growth?
Brian Halligan, CEO
When I think of HubSpot, it still feels like we are just getting started in our journey. There is a vast market for CRM, and we are in the process of evolving from a marketing app to becoming the top CRM for scaling companies. You can expect us to continuously enhance our product, refine our go-to-market strategy, and improve our execution. We are dedicated to getting better and providing more value to our customers. This is not a company that is standing still; we have significant investments on the way, more innovations, and enhancements to our existing products. It still feels early for us.
Operator, Operator
Your next question comes from Stan Zlotsky from Morgan Stanley.
Stan Zlotsky, Analyst
Thank you so much. And congratulations also on a very, very strong end to 2020. Maybe just a couple of questions from my end. On the macro, right, what are you guys seeing across the world? And, how are you baking that into the growth acceleration that you provided for 2021 on the top line?
Brian Halligan, CEO
Do you want me to take that? Do you want to take that, Kate?
Kate Bueker, CFO
You want to start, and then I can talk about how we included that in guidance?
Brian Halligan, CEO
Sure. I'll reiterate what I mentioned earlier, Stan, regarding a couple of driving factors. COVID has really accelerated the digitization efforts of many businesses. It was clear that there was a need for complete digitization in go-to-market strategies, and the pandemic has simply fast-tracked that process. The demand has been robust, and I don't anticipate it diminishing. I believe businesses will continue to embrace future developments. Furthermore, our entire market is expanding, and specifically, our target market is also growing. We're transitioning from a marketing app to a CRM platform, which operates in a much larger market than just marketing applications. We're seeing significant progress in that area. Additionally, our unique competitive positioning is very attractive to prospects and existing customers. As a result, our win and retention rates are improving. Overall, positive outcomes from the strategic decisions we've made over the past couple of years are starting to show significant results.
Stan Zlotsky, Analyst
And now, just a quick follow-up. The Starter package promotion, which was a very smart, strategic decision to make throughout the year with its promotional pricing, how are you considering that as you move into 2021 when some of that promotional pricing will begin to conclude? What are your thoughts on retention and conversion rates?
Kate Bueker, CFO
Yes, thank you for the question. We are paying close attention to this. To provide some context, our goal with the changes to pricing and packaging was to simplify the process. By consolidating everything into a suite and offering a $50 price point, we aimed to make the purchasing experience easier for our customers at the lower end. The insight we gained from this is that ease of access is very appealing. We believe this was an excellent decision. We are monitoring upgrade and usage rates carefully and feel positive about both of these metrics. Overall, we are optimistic about the Starter Growth Suite initiative. We also have operational plans in place to enhance the renewal success for those larger cohorts and will continue to provide updates as needed.
Operator, Operator
Your next question comes from Terry Tillman from Truist Securities.
Nick Negulic, Analyst
Hey. It’s actually Nick on for Terry. Thanks for taking our question. I just wanted to touch on international a little bit. So, it seems like international revenue growth has actually outpaced domestic growth in recent quarters. I was just wondering if you guys could talk about how you’re investing in that area to continue to drive strong growth. Then, where international could potentially move to as a percentage of revenue long term? Thanks.
Brian Halligan, CEO
Sure. This is Brian. I'm really pleased with both our international and domestic growth. Domestic growth has seen a nice increase, which speaks to the size and growth of the market. Looking at the market, both U.S. and international segments are performing well. Across all areas, including small businesses, mid-market, and enterprise, we're seeing positive results. Additionally, both our direct and indirect channels, including our partner channel, are doing well. This is indicative of improvements in our product, the growing value proposition, and the effective momentum we're experiencing. Maybe Kate has more to add on this.
Kate Bueker, CFO
Yes. I think that as we look at international, it has consistently been stepping up as a larger share of the overall revenue of the company, and we would expect that that would continue over the next few years.
Operator, Operator
Your next question comes from Arjun Bhatia from William Blair.
Arjun Bhatia, Analyst
I’ll add my congrats on a strong quarter. Brian, maybe one for you. You’ve touched on kind of this evolution from an app to a platform. I’d just love to hear what you’re seeing from your new customers in terms of product adoption? Are you seeing them actually buy the whole platform upfront, meaning the Growth Suite, get all through solutions regardless of the addition that they’re starting on? Do you see more platform adoption from these new customers that are coming on board?
Brian Halligan, CEO
Yes. Arjun, great question. The transition has gone real well. When I think about HubSpot, I can’t help but think about the Clive Bell rule. I’m not sure if you’re familiar with that. But, if you have one Clive Bell that can pull 1,000 pounds. And then you add a second Clive Bell that can pull 1,000 pounds, the really interesting thing that happens is that the combined Clive Bell can pull 4,000 pounds of stuff. That’s HubSpot. We have our Marketing Hub, we have our Sales Hub, our Service Hub, our CMS Hub. They’re all built on this set of shared services underneath. The UI is the same. It’s a single data model. It’s a beautiful consumer-like front end and a powerful enterprise back end. And so, we’re seeing nice adoption of that, a nice pickup from new customers who are buying the full suite, particularly the Starter suite, and lots of existing customers from our Marketing Hub or Sales Hub buying other hubs. So, getting really good traction, particularly with new customers, but also the installed base.
Arjun Bhatia, Analyst
And one follow-up, if I can, for Kate. I think, you mentioned really high record net retention rates. As we look forward, I think this has fluctuated in the past. Do you get the fact that we’re in a place now with the expansion motion that this can consistently stay above 100%, or should we expect a little bit more fluctuation there going forward?
Kate Bueker, CFO
Yes. I mean, that’s a question we spend a lot of time talking about internally as well. I think, you just kind of turned clock back a little bit. At the time of the IPO, we had sort of a net retention in the mid-90s. Over the last couple of years, that has stepped up, and we’ve been saying in and around 100. Look, we’ve reached a new gear here in the last couple of quarters, and we’re not calling a new normal, but the performance over the last couple of quarters certainly gives me a lot of confidence that we’ll be able to keep retention at or above 100.
Operator, Operator
Your next question comes from DJ Hynes from Canaccord Genuity.
DJ Hynes, Analyst
Thanks. Congrats on all the accolades and momentum, really impressive stuff here. Brian, I got a product question for you. So, if you think about HubSpot in the context of a CDP, right, collecting the data across the various customer touch points, my sense is that you guys are really good at aggregating the data that happens inside of HubSpot. Where are you in terms of pulling in data that’s generated in other systems? Is that something that customers ask for? Is it important to the growth of the platform? Any color there would be helpful.
Brian Halligan, CEO
Excellent question, DJ. Excellent question. I do think of HubSpot as a CDP where we do a fantastic job of collecting all kinds of data about all the touch points you have with your prospects and customers, whether that’s visits to your website or they fill out a form or they’re chatting with you on the website or they have a call with your sales rep, whether they don’t fill on a ticket, whatever it would be, and then we combine them together and have this one unified view of the customer that makes it incredibly valuable for the whole organization. Where you’ll see us go over time, it’s getting better and better, not just us collecting that data that is managed by HubSpot, but with all of your front office applications and pulling all that together and making sense for our prospects with it. So, that’s an area we’re investing in. Super excited about our customers who want it. And keep your eyes on that channel.
DJ Hynes, Analyst
Okay, awesome. And then, one follow-up for Kate, if I can. So really, really strong net adds the last few quarters, but I think equally impressive is that ARPC has been going up sequentially, right? So, do you think we’ve seen a bottom in that metric? And, is it possible that we see subscription revenue per customer actually grow in 2021?
Kate Bueker, CFO
Yes, we are doing well in overcoming significant challenges. We are very pleased with the additional net adds in Q4. What I appreciate is that customer growth has been well distributed between the Starter and the Professional, Enterprise segments. This has also resulted in a quarter-over-quarter increase in ASRPC. There will be quarters with fewer customer additions, often at the high end, which will lead to larger increases in ASRPC. Conversely, there will be times with more low-end customer additions, which may put pressure on ASRPC. The positive aspect is that both the Starter and the Professional and Enterprise segments are growing, and we feel optimistic about this.
Operator, Operator
Your next question comes from Brian Peterson from Raymond James.
Brian Peterson, Analyst
I’ll echo my congratulations. So, Brian, maybe just one for you. If I think specifically about Sales Hub, in some of my partner conversations, I’ve heard that the ability to kind of work with larger and larger teams is something that’s kind of a common theme. What are some of your largest deployments for Sales Hub? And, how large do you think they can ultimately be over the next 3 to 5 years?
Brian Halligan, CEO
Thank you for the question, Brian. Sales Hub has great potential. We reintroduced Sales Hub Enterprise at INBOUND last year, and there has been strong demand for it recently. We have several exciting developments planned for Sales Hub Enterprise this year and next. This product is set to become very significant, and I feel optimistic about its future. Regarding the size of deals, we are definitely securing larger contracts. In Q4, we closed several deals that included hundreds of seats, and we are seeing many more opportunities in our pipeline with larger seat volumes. Our strategies and investments in Sales Hub are starting to yield results as deal sizes increase. When I consider HubSpot, it's evident that we excel in the middle market, specifically with businesses having 20 to 200 employees, and I would grade our product market fit and go-to-market fit in that area as excellent. Our focus is now on the enterprise segment of 200 to 2,000 employees, as well as the 2 to 20 employee range. We made significant investments in these areas last year and this year, and we believe we will see considerable progress.
Operator, Operator
Your next question comes from Michael Turrin from Wells Fargo Securities.
Michael Turrin, Analyst
Look, the initial guide on top-line for the upcoming year really stands out. You’ve laid out a bunch of reasons for it, but anything else you can add? If I’m looking at this right, you have initially guided to 30-plus-percent revenue growth in four years now. So, anything you’d call out that’s just structurally different, heading into this year versus prior years?
Brian Halligan, CEO
I hear Jeff Bezos mentioning this. In any given quarter, what’s happening now is a result of efforts we've made over the past few years. Therefore, what occurs this month doesn't really influence Q1 significantly. I'm not surprised by our strong results and positive guidance; we've reaccelerated. In some cases, we've taken two steps back to move four steps forward, and we're beginning to see returns on those investments. Moreover, our market has expanded. We transitioned from a marketing application market, which is valuable and not small, to the entire front office. The CRM market is significantly larger and essential for everyone. Whether you're a startup acquiring your first CRM or a growing company dissatisfied with your current solution, we're a great match now. We've improved our fit over the last couple of years. Our competitive advantages have strengthened. Although it may seem a bit traditional, our value proposition has enhanced. We win more deals, retain customers longer, and ensure customer satisfaction. It may be old-fashioned, but it’s effective.
Michael Turrin, Analyst
Long-term vision is neither boring, nor old-fashioned. It’s refreshing to hear. I mean, the other question we’ve just been getting a lot is around new customer trends and how to think about the sustainability of these elevated levels. Has the Starter Growth Suite unlocked something new you feel you can continue to tap into here, or anything else you can provide just to help us think through comparing the net adds you’ve seen this year versus prior historical periods?
Kate Bueker, CFO
Yes. I mean, it definitely feels like we’ve sort of hit a new level. You’ve seen now three quarters where you have broken away from that, what we had been at that, call it, 3,000, 4,000 customer adds per quarter. And we feel good about our ability to continue to operate at that new level. Now, that doesn’t mean that I would translate it into 8,000 to 9,000 a quarter. I do think, as I was talking about a little bit earlier, there’ll be some variability from one quarter to the next, based on whether we’re seeing some strength at the low end or strength at the high end.
Operator, Operator
Your next question comes from Drew Foster from Citi.
Drew Foster, Analyst
Brian, you’ve been talking a lot about the growth and evolution of your portfolio to more of a front-office platform. And I’m just curious what you’re seeing as sort of the biggest changes in that market more broadly in the context of how that changes your view of different areas that look like attractive adjacencies for your portfolio.
Brian Halligan, CEO
That's a great question. To give some background, I've been involved in the CRM space since I graduated college in 1990. Throughout my career, I've either purchased, implemented, or utilized CRMs. There's a well-established method for doing this, which has existed for a long time, where a company creates a sales force automation application, then combines various tools to create a comprehensive CRM system. We see several of these in the market today, and it's a viable business model. However, we chose to take a different approach. Instead of putting together disparate elements, we opted to create a cohesive, well-designed application, similar to how Apple operates. Our development team, product designers, and user research staff are highly skilled, and the internal tools and platform we use are very robust. Therefore, we decided to build something we believe is unique and differentiated, which is particularly valuable for end users and operational teams who implement these solutions. Currently, HubSpot is supported by shared services that we've organized into four hubs, but we are still in the early stages. There is much more in our plans and designs that we can introduce as additional hubs in the future. While I won't disclose specifics about their timing or nature, I want to emphasize that we're just getting started and there are more opportunities ahead for HubSpot.
Drew Foster, Analyst
Got it. Okay. And now that your newer hubs have been out in the wild for a few quarters, especially some of your Enterprise releases, just wondering if you could give some anecdotes about sort of the role they’re playing as new front doors to your business as you’ve talked about in the past, whether you’re attracting new types of customers. Just given how strong that customer number is the last couple of quarters here, just any color would be helpful. Thank you.
Brian Halligan, CEO
Thanks for the question, Drew. I view HubSpot as having the Marketing Hub, which is our original hub, performing very well and experiencing rapid growth in a large market. We plan to continue expanding. The Sales Hub has become a significant business, also growing quickly with plenty of opportunities. The CMS Hub and Service Hub resemble how the Sales Hub looked a few years into its development. Ideally, in three years, both the Marketing Hub and Sales Hub will be well-established, while the CMS and Service Hubs will also be substantial. Additionally, we have new hubs emerging. Following the Horizon theory, we are placing bets across different stages of development, with both maturing and new initiatives coming forward. The CMS Hub and Service Hub are performing well and remind me a lot of the Sales Hub. I believe they will become major businesses, and the synergy of these components will prove to be very powerful over time.
Operator, Operator
Your next question comes from Christopher Merwin from Goldman Sachs.
Christopher Merwin, Analyst
I wanted to ask about the service space. We’re hearing more and more about messaging and chatbots being central and engaging with current and prospective customers. So, can you talk a bit about what you’re doing in that area and how you’re capturing that data and helping reps close more deals?
Brian Halligan, CEO
Yes, we’re very interested and are making significant investments in this area. When you consider the way most communications occur through email or messaging, there is a growing demand for real-time communication options. Many different methods are now available for messaging. The chat feature on websites and automated chat solutions is a focus for us, and we have developed a strong offering that is being adopted by our customers. This solution integrates seamlessly with your website or app, allowing for real-time responses to inquiries. We are very enthusiastic about this space as it represents an area of growth for HubSpot, reflecting how human behavior is evolving. HubSpot is adept at adapting to these shifts and assisting people in navigating them. It’s an important topic, and we are genuinely excited about our progress in this area.
Christopher Merwin, Analyst
And maybe just a quick follow-up. Obviously, I think you talked about it a little bit before, but accelerating growth next year. Not going to see that pass through to margin, but you’re investing a lot in the long term here. I mean, is it possible to get a bit more granular on some of those key areas, specifically within go-to-market and R&D? Thanks.
Brian Halligan, CEO
Sure. We have been investing significantly in research and development over the past few years and plan to continue this trend. We believe we are seeing positive returns, as evidenced by our retention rate, net promoter score, and revenue growth. The preliminary indicators are looking promising, and so are the later metrics. Thus, we will keep investing in this area and also in our existing products. We have a strategy to revisit and relaunch existing product hubs, which has proven effective for us. Additionally, we will develop new hubs and capabilities. Our R&D team is performing exceptionally well right now, so we expect to see results from their efforts. Kate, would you like to add anything?
Kate Bueker, CFO
No, I think on the go-to-market side, we continue to invest to be able to service the demand that we’re seeing in the market. And we talked about the fact that we’re investing where we feel like we have this A on the go-to-market and product in the middle and that we’re investing both upmarket and also in tech touch at the low end.
Operator, Operator
Your next question comes from Ken Wong from Guggenheim Partners.
Ken Wong, Analyst
Brian, you mentioned earlier, CMS and Service looks like we’re 2, 3 years into what you saw with Sales. As we think about the kind of the maturity of those products, is it just a matter of time you think before we get to a run rate like Sales, or is there some incremental watering, seeding, loving that you guys have to give to Service Hub from a product go-to-market perspective before we maybe see those kind of results?
Brian Halligan, CEO
No. Lots of watering, lots of fertilizing, lots of work left to do. Let’s just pick out Service Hub. The product is terrific, let’s say, if you’re a 50, 75-person company, if you’re a 500 or 750-person company, there’s some stuff that’s still missing. And it kind of reminds me of Sales Hub a couple of years ago. If you’re a 500, 750-person company, like you’re closed guys, but there’s a subtle gap. It’s very, very similar. We know what the gaps are. And in our own way, leveraging the primary colors, we’re filling those gaps. There’s plenty of water, plenty of fertilizers left to do. And I would say that also for the Marketing Hub product. Like, we’ve had that product out there for 14.5 years. There’s still plenty of low-hanging fruit at Marketing Hub product. It’s a terrific product. But even this year, it’s going to get a lot better. And so, yes, we don’t see HubSpot as sort of the fixed thing, like there’s going to be a lot of innovation across new and existing hubs over time.
Kate Bueker, CFO
Yes. I think, that the message that you should hear from us is that the priority is on continuing to invest in the business to drive long-term growth. That said, we have a framework. And over the long term, we will continue to follow that framework. But, in the near term, I think, you shouldn’t expect a linear movement.
Operator, Operator
Your next question comes from Michael Turits from KeyBanc Capital Markets.
Michael Turits, Analyst
So, a strong quarter, both on the net expansion of existing customers and it sounds like new customers came in at a high price level, too. Which was the bigger factor in both of those? What was it, was it the addition upsell and higher level of additions, or what was it more attached at multiple ops?
Kate Bueker, CFO
It’s relatively balanced. There are several factors that contribute to it.
Brian Halligan, CEO
Yes. I would just say new and cross-sell both performed well.
Michael Turits, Analyst
Kate, in the last quarter, you mentioned a headwind regarding duration in billings. This quarter, given the strong performance in billings, did we experience any benefits from duration?
Kate Bueker, CFO
Yes, there was. As many people who listen to these calls know, billings is not my favorite metric. There are many factors that can confuse people regarding billings. However, over the long term, constant currency revenue and constant currency billings will track each other. You may see some quarter-over-quarter volatility. Last quarter, we observed constant currency billings exceeding constant currency revenue. This was partly due to an advantage from duration extensions. The Professional and Enterprise editions performed very well, and they typically have longer billing terms compared to the lower-end Starter products. Additionally, some customers who were on short-term payment plans during the pandemic transitioned back to standard billing in Q4, which contributed, though it was a smaller factor. The overall performance in billings was also bolstered by strong bookings for the quarter.
Operator, Operator
Your next question comes from Ryan MacDonald from Needham.
Alex Henderson, Analyst
This is Alex on for Ryan. Could you discuss the strategic rationale for the Hustle acquisition? Content creation and top-of-funnel lead generation has never really been an issue for the business, in my view. So, how does this enhance the business or Hub's possibility to acquire new logos?
Brian Halligan, CEO
Great question. Alex, when we started HubSpot, it was on this idea of inbound marketing. And the problem with marketers is they’re always renting space on someone else’s assets, a radio show, a TV show, a newspaper, and increasingly more recently, a social network or a search engine. And the idea behind inbound marketing was instead of renting space in somebody else’s assets, well, just create your own asset, increase the number of those assets, and increase the return you’re getting on those assets. What I love about the Hustle folks is they had some unbelievable assets. They had a newsletter asset. Very, very, very modern, those things are taking off. They have the best one in the business in our opinion. They have a fantastic podcast and very deep research. So, it’s a little bit of an acquirer to get that terrific talent and all those assets that we plan to invest in and grow over time. So, we’re super, super excited about the Hustle. We think it’s going to be a fair advantage on the marketing side, for sure.
Operator, Operator
Your next question comes from Jennifer Lowe from UBS.
Jennifer Lowe, Analyst
Brian, you’ve made comments a couple of times about sort of the scaleup versus start-up component of your business. And in particular, given that a lot of those companies that may have been in market longer are now dealing with a selling environment that’s very different than how they sold in the past. I’m just curious if you’re seeing any difference. And at the same time, you’ve matured your own product with the Enterprise and Pro SKUs. Are you seeing a difference in how often you’re replacing an existing technology that may not be meeting current needs as opposed to how frequently you’re landing in an environment where there just really isn’t preexisting technology?
Brian Halligan, CEO
Yes, that’s a great question, Jennifer. In a startup, we often become the first legitimate system they implement, like their initial CRM, which is our goal, and we want to grow alongside them. In a scaleup, however, they may have previously tried to implement a CRM, but it was unsuccessful due to its complexity and difficulty in setup. They might have partially set it up and then concluded that there’s no better way to manage their needs. Then they discover HubSpot and choose to implement us, and we are increasingly seeing this trend. We've mentioned it before, but it's becoming more prevalent in the market. I believe it reflects our strategy, which takes time to build properly, and that patience is proving beneficial. Our go-to-market strategy also supports this, allowing users to engage with traditional CRM competitors through free trials. Unlike them, we avoid cumbersome sales processes and have a modern approach that users appreciate. They prefer to try out a free product first and then engage with a sales rep for more information about pricing and setup. Our methodology aligns with how they prefer to purchase, showcasing our strength in offering an easy-to-use and modern solution. HubSpot can be compared to Zoom in that regard; while both are superior products, our purchasing process is much simpler, and we aspire to maintain that approach. I believe the future lies in this direction.
Jennifer Lowe, Analyst
And then, just maybe a more specific one. It seems like relative to the headwinds that were happening in Q2 when everything went to shelter-in-place, you’ve now largely kind of recovered the business that was negatively impacted by that. Is that a fair assessment, or is there still more opportunity to improve the recapture rate of business that might have been impaired earlier in 2020?
Kate Bueker, CFO
We are largely through the impact of COVID plays.
Operator, Operator
Your next question comes from Keith Bachman from Bank of Montreal.
Keith Bachman, Analyst
I have two questions that I'd like to ask simultaneously. First, regarding net adds, following up on Michael Turits' question, I would like to hear your comments about this calendar year. Is there anything specific you want to highlight? I'm particularly interested in understanding how the mix for net adds might influence the model. Secondly, you've previously mentioned that commerce could be an opportunity for our market. I would like to hear your updated thoughts on commerce, specifically regarding the potential for HubSpot within your differentiated model. Thank you.
Kate Bueker, CFO
Yes. Sure. In terms of new customer adds, I think what you saw this year, 2020, was that the initial step-up that we saw in Q2 and then into Q3 was very much associated with the Starter Growth Suite pricing and packaging change. And then, over the course of Q3 into Q4, what we saw is a much more balanced set of customer additions, which is what sort of leads me to the comments that from one quarter to the next, there are going to be some differences in the kinds of customers we add, as we introduce different functionality and make pricing and packaging changes.
Brian Halligan, CEO
Keith, on your commerce question, we’ve largely focused on B2B. And I’m kind of thinking like Shopify and HubSpot. They’re on the B2C side, we’re on the B2B side. Where we do think there’s opportunity though is increasingly on the B2B side. The way people want to buy is changing. And increasingly, they want a very light touch experience. And increasingly, they want parts of their products and maybe all of their products even on the B2B side to be some sort of an e-commerce transaction. So, that’s an area we’re very interested in. And I’ll just leave it at that, very interested and we’re investigating and looking at. But B2B commerce is, I think, a nice area of opportunity for startups and companies like HubSpot over the next couple of years. B2B buying process inevitably is going to change. And I think it will change for the better for the vendors and the buyers, and we want to be able to help our customers with that over time.
Operator, Operator
Your next question comes from Kirk Materne from Evercore ISI.
Kirk Materne, Analyst
Brian, you touched on this in some of your prior comments, but I was just kind of curious how often the concept of a platform now comes up with both, really new customers? Meaning everybody is moving faster from a digital perspective, but as they move faster, are they asking more about sort of I want to make a bet on a platform as my first landing spot versus what you saw maybe a year or two ago? Because I think we can all see the customer adoption that you guys are seeing is accelerating. But, I was kind of curious if the conversations you’re having around that platform are also changing at maybe the same pace.
Brian Halligan, CEO
Yes, more and more customers are choosing to purchase the entire platform upfront. For those who are already using our Marketing Hub and considering a new CRM, it makes perfect sense to go with HubSpot since they’re already familiar with our platform. This creates a straightforward transaction for us. We’re seeing an increasing number of customers interested in buying complete solutions. The investments we've made over the past few years are starting to yield results, but I want to emphasize that we still have a significant amount of work ahead of us. While we’ve made significant strides with our platform recently, customer feedback indicates that there are still many opportunities for improvement and additional features they desire. Therefore, we have plenty left to accomplish.
Operator, Operator
Your next question comes from Siti Panigrahi from Mizuho.
Siti Panigrahi, Analyst
Going back to some earlier question about this, you talked about positive mix shift to Professional and Enterprises. So, last year, after the pandemic broke, you talked about downgrade of subscription. So, how much of this mix shift is influenced by those customers operating back versus the newer Starter customers that joined the last couple of quarters now upgrading into more Enterprise and Professionals? And have you already upgraded most of them who downgraded right after March-April?
Kate Bueker, CFO
Yes. I would say it breaks down into a couple of points. You are correct. We provided a number of concessions to customers in Q2 as a response to the pandemic, mostly in the form of short-term discounts and flexible payment options. We have mostly moved past those concessions. There is some impact in Q4, but it is not significant. The larger impact on duration comes from the new customers we are adding, particularly in the professional and enterprise tiers, where we are seeing increased strength.
Operator, Operator
Your next question comes from Derrick Wood from Cowen.
Derrick Wood, Analyst
Congrats again on a strong quarter. I wanted to come back to the notion of shifting from a marketing app to a CRM platform. And clearly, that’s gaining momentum. But, I wanted to maybe ask about what’s going on in the channel, and whether existing partners are kind of evolving towards more of that broader platform approach as well, or perhaps there’s kind of a new kind of cohort coming on board from the partner set? It would be nice to hear about how you’re seeing the channel evolve.
Brian Halligan, CEO
That’s a great question. Thank you. The channel is definitely changing. When we first started HubSpot, it was primarily focused on the marketing agency partner channel. We now refer to it as the solution partner channel because they are indeed solution partners. There are two trends happening. Some marketing agencies are focused solely on marketing and continue to thrive in that area without any changes. However, other marketing agencies are transitioning to become CRM partners for their clients, which is altering their business models and value propositions. We are excited to see both developments. As for the new partners joining us, we still have marketing agency-style partners coming in, but there is an increasing presence of CRM implementers. These partners are typically more technical and engaged in larger implementations, involving greater integration and customization. So, we are seeing a mix of both types. The real opportunity lies in combining our content management system with our CRM system to create exceptional experiences for customers, and there is significant potential for partners in this area.
Operator, Operator
That was our last question. At this time, I will turn the call over to Brian Halligan, CEO and Chairman, for closing remarks.
Brian Halligan, CEO
Thanks, everybody, for joining the call today. Thanks a lot. I appreciate it.
Operator, Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.