There's been a changing of the guard among the world's most valuable companies over the past 20 years, a shift that has accelerated since early 2023. Case in point: Back in 2004, General Electric and ExxonMobil were the world's largest companies in terms of market cap, valued at $319 billion and $283 billion, respectively. Now, just two decades later, industrial issues have been lapped by technology.
Apple currently tops the list at $3.3 trillion. Microsoft and Nvidia each briefly held the crown, currently worth $3 trillion and $2.6 trillion, respectively. Tech titans Alphabet, Amazon, and Meta Platforms are also charter members of this elite society, worth $2 trillion, $1.7 trillion, and $1.3 trillion, respectively.
With a market cap of just $24 billion (as of this writing), it might seem absurd to suggest that HubSpot (NYSE: HUBS) might be on track to join the $1 trillion club. However, the company's ever-expanding customer list, fast-growing market opportunity, and strategic integration of artificial intelligence (AI) could give HubSpot a clear path to membership in this exclusive fraternity.
A record of successful expansion
HubSpot may not be a household name, but the company pioneered the concept of inbound marketing. This strategy focuses on attracting potential customers by creating compelling and useful online content through social media and blog posts rather than annoying them with traditional ads. The company has since expanded its collection of offerings to include a wide array of unified customer relationship management (CRM) tools, including sales, marketing, service, operations, and content management systems (CMS).
This strategy of gradually expanding its suite of interconnected offerings and boosting the capabilities of its existing products and services has served the company well. HubSpot's revenue has increased at a compound annual growth rate (CAGR) of 38% over the past 10 years. Despite the current challenging economic conditions, that growth has continued, albeit at a more moderate pace.
In the second quarter, HubSpot's revenue of $637 million climbed 20% year over year, while adjusted earnings per share (EPS) of $2.03 jumped 40%. This was driven by customer rolls that climbed 23% to 228,045, though the average revenue per customer slipped by about 2%. Management believes HubSpot's total addressable market (TAM), estimated at $51 billion in 2023, will rise to $77 billion by 2028.
While management's outlook tends to be conservative, HubSpot has increased its forecast twice in as many quarters, guiding for revenue of $2.57 billion in 2024, representing growth of 18% at the midpoint of its guidance.
It's also worth noting that HubSpot began using AI long before it went viral last year. More than three years ago, the company introduced "predictive lead scoring," using machine learning to sift through thousands of new leads and prioritize them based on how likely they are to convert. HubSpot added to its AI credentials last year, releasing a suite of AI-powered, generative AI-infused customer tools that have since been dubbed HubSpot AI.
The path to $1 trillion
HubSpot made a name for itself by focusing its CRM efforts on the small and medium-sized businesses that were historically ignored by rivals. This has helped fuel the company's exceptional growth. HubSpot also has an enviable track record of retaining these customers as they grow into much larger and more lucrative businesses. That said, it will still be some time before HubSpot makes the list of trillionaires.
According to Wall Street, HubSpot is expected to generate revenue of $2.56 billion in 2024, an increase of 20%, giving it a price-to-sales (P/S) ratio of roughly 11. Assuming its P/S remains constant, HubSpot would need to increase its revenue to roughly $89 billion annually to support a $1 trillion market cap, a feat that will be years in the making.
If the company can maintain its double-digit year-over-year growth rate, HubSpot could reach the $1 trillion market cap threshold by 2044. That said, given its historical CAGR of 38% over the past 10 years, HubSpot's revenue could reaccelerate once the specter of inflation is in the rearview mirror. If the company can revert to its historical growth rate, HubSpot could potentially reach a $1 trillion market cap in roughly a decade.
Given the company's $77 billion opportunity and management's track record of success, HubSpot seems destined to join the $1 trillion club, but investors will need to be patient.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, HubSpot, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, HubSpot, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Prediction: 1 Unstoppable Stock Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta in the $1 Trillion Club by 2034 was originally published by The Motley Fool