Earnings Updates: HUBS, ABNB, FTNT

We are building up quite a backlog of quarterly reports, but let's knock out 3 more in this write-up. In this one, we will take a quick look at the quarters reported by HubSpot (a Watch List stock), Airbnb, and Fortinet.

HubSpot (HUBS)

HubSpot's Q2 results came in pretty much to our expectations. Revenues grew 25% year-over-year, and subscription revenue was up 26%. Gross margins increased to 83.5% from 81.3% a year ago, continuing a solid improvement in profitability. We saw this play out all the way down to free cash flow, where HubSpot's 11.4% cash margin was a marked improvement over 6.3% a year ago. Management has talked about improving profitability, and we are starting to see some fruits of that labor.

This is yet the latest company to double down on AI. HubSpot is building out AI assistance across its various Hubs. Notable is ChatSpot, a generative-AI chat bot that can help clients with business intelligence. For example, ChatSpot can be used to design entire marketing campaigns including titling and image generation, or search a CRM database for prospects based on location, industry, and more.

HubSpot is performing right in-line with expectations. The fair value gets a small, time-based bump from $306 to $309. The stock has come down some but still looks far too rich to consider buying right now.

Airbnb (ABNB)

Another solid quarter from Airbnb. The company delivered an 18% increase in revenues, with free cash flow growing 16%. For business metrics, the firm booked 11% more nights and experiences than a year ago at a +13% total booking value. These are solid numbers on top of what was a very strong 2022 travel season. The company was particularly proud of its 19% increase in active listings, a strategic priority after supply growth had stagnated during COVID.

The company's $2.5 billion in share repurchases over the past year (at very attractive prices) has led to a 3% decline in shares outstanding, a bit faster than modeled for. Incorporating this and its slightly better-than-expected growth, the fair value estimate gets a slight bump from $137 to $142. The shares look fully valued at present.

Fortinet (FTNT)

Sometimes the market reacts in ways I don't get, and that was the case with Fortinet this past quarter. Revenues grew 26%, with product sales up 18% and service up 30%. Deferred revenue (future sales) was up 30% from a year ago. All of these are strong figures in line with most expectations. The one "weak" number was quarterly billings, which at $1.54 billion were up "just" 18%. Additionally, the company pulled back slightly on 2023 revenue guidance. In response, the market sold off FTNT stock to the tune of a 26% decline!

Obviously, that doesn't seem warranted, as even as a mid-$70 stock, Fortinet looked substantially undervalued. I still feel that way. Fluctuations in quarterly billings are not a huge surprise, as Fortinet still gets 40% of revenue from product sales and product sales are non-recurring revenue. Various factors ranging from economic uncertainty to larger order timing can affect this number on a quarter-to-quarter basis. Certainly we will keep an eye out for any trends, but as of now this is still one of the top dogs in secure networking and there's nothing in this quarter to suggest that position is eroding.

Incorporating the lower-than-anticipated guidance number, it's fair to lower Fortinet's fair value estimate, but not substantially. It gets a slight hit to $106, down from $110. That still makes the stock look pretty attractive to me here in the low $60 range.