HubSpot is a stock to invest in, zoom from ZoomInfo: Analyst

Software stocks have been on a tear since generative AI entered the picture. But not all of them will be worthy of your portfolio. In the latest Good Buy or Goodbye, RBC Capital Markets Software Equity Analyst Rishi Jaluria explains why he's long HubSpot (HUBS) but is skipping ZoomInfo (ZI).

Jaluria likes HubSpot for a few reasons. He says the company is not only gaining share in the customer relationship management space thanks to its single-platform approach, but that it's seeing success with multi-platform product adoption. Jaluria also thinks HubSpot has "probably one of the most impressive AI roadmaps of any company in front-office application software."

Jaluria is skipping ZoomInfo. He says increased competition and increasing macro-pressures are negatives for the stock. He also thinks generative AI and large language models pose a risk to the company.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Stephanie Mikulich.

Video transcript

It's a big noisy universe of stocks out there.

Welcome to, goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio today, we're looking into the sales and marketing software landscape and we've got a special treat here today are BC capital market, software equity analyst.

She is with us.

Usually we talk to you from the West Coast.

A pleasure to have you here.

Wonderful to be here.

Thank you so much for having me.

Yeah.

So let's get to it here.

Let's talk about the stock that you think is a goodbye right now and that is hubspot.

Hubspot up about 13% or so over the past year.

So let's get to why you like it.

You talked about.

First of all that, it has sort of a single platform approach.

Why is that a strength for the company?

Absolutely.

And you know, look for those that don't know hubspot very well.

It's effectively like a sales force that it does sales marketing service, commerce operations.

However, in contrast to sales force that has grown through acquisitions over the past 1015, 20 years, Hubspot built all of these on one single platform.

That means it's one user interface, one single source of data to do all of these different functions of what we call the broader CRM ecosystem.

I do believe that having all of these applications built on one platform versus disparate platforms is a really big competitive advantage, especially when it comes to gen A I.

And I know we'll talk about that in a second.

So and basically it's simpler.

Exactly.

Ok. Got you.

And then, um, if we talk about multi products, sort of built on that single system, you think that's also an advantage for that?

That's exactly it.

Right.

Because these things are so uh woven together really nicely and organically, they're seeing great success with multi product adoption that customers that started on marketing are now using sales, they're now using service in ways that they weren't doing before.

And at the same time, they are moving up market where customers may have started and then moved on to sales force.

They don't do it anymore.

They grow up, they become big customers and they still stay on hubspot.

Interesting.

All right.

So let's get to what you talked about.

And that is the gen A I part.

You, you like their gen A I road map.

What is the A road map?

How are they using it?

Yeah.

To me, what's really important when we think about software companies A I strategies is, are they bolting on A I or are they fundamentally re architecting and changing the way their software works to be A I first and A I native?

And that's exactly what I see out of hubspot.

I would argue they have probably one of the most impressive A I road maps of any company in front office application software, you see new use cases you can unlock from it.

You get new insights into your data pipeline, build opportunity generation.

These are not just making you more efficient but making you effective in ways you could not do in a pre gen E I world.

Got you.

We always talk about what a potential risk to the upside here.

And in this case, maybe tech, what do you mean by tech ceiling to enterprise?

And what that means is what if there's a certain limit of how big customers can get that they can go after, right?

Because that's really where the enterprise the opportunity is is large enterprises, right?

Fortune 500 Global 2000 H brought A as their hands full, attacking SMB and mid markets today.

But over time, I can imagine their ambitions are to go into the enterprise.

Remember sales force began as an SMB tool going after the behemoth that was cable and local sales forces today.

I can see how do the same thing but it is really important that their technology can scale and they have those enterprise, great features and functionality that really large companies like ours actually need.

Um There's one more thing I have to ask you about hubspot and that is, it has been an acquisition target rate.

There's been a lot of chatter around company.

There have been some questions, how does that sort of play into your thesis?

You know, to be quite honest, I actually think hubspot could become a much bigger company on its own rather than getting swallowed by a larger company.

The rumors have been out there around Google and while I think Google would love to own this asset, this is a top tier asset in enterprise software.

Um I do not believe the regulators would allow it.

They would not allow Google to make their largest ever acquisition, right?

It would be $40 billion to get this deal across the finish line.

Youtube was billion dollar acquisition.

That's been really controversial in, in retrospect.

So I don't think a deal happens, but I think it's actually better for hubspot long term that they go at it alone.

Interesting stuff.

All right, let's get to the stock that you do not like here.

And that is Zoom Info and now Zoom Info shares are already down more than 50% over the past year or so.

And you still think it's not a good buy.

So let's talk about why here some of it is Macro now, why is Macro affecting Zoom Info more than perhaps some of their competitors?

I think there's a couple of reasons for that for so for the that don't know zoom info, it's primarily contact data to help sales people better reach targets like lead generation, lead generation.

And this was super, super important during the heyday of 2020 2021 when there was no such thing as bad spending in software, things have changed since then.

And so macro, I mean, if you can imagine they're very, very exposed to the software vertical to tech to start ups.

And that's where we've seen a lot of the layoffs happening.

And at the same time as every company is trying to p themselves more towards profitability, that means they're more, their focus is more on growing with existing customers rather than landing net, new logos, which is the bread and butter of what Zoom Info is used for you and they're fighting for that pie with other companies.

That's exactly it.

The competition is getting a lot worse.

Three years ago, we used to talk about how Zoom Info had the best depth and breadth of data and I think competitors have significantly caught up to them, most notably Apollo, which is in this space and then hubs actually made an acquisition in this space as well.

And I can imagine they're just gonna give it away for free to their large existing customer base.

Zoom info is an expensive product.

Um I think their list price is 10 to $15,000 per user per year.

Effective price, probably a lot less than that.

But that is going to put a lot of pressure on them.

And then at the same time when their competitors are getting better, I think that's a tough combination for Zoom.

Well, and then Richie, the other thing is we, we continue to have this debate over what A I could potentially replace what gen A I could replace.

And you maybe Zoom info might be on that list.

I think that's, that's absolutely right.

Look LL MS are really good at scraping the web.

That is what they do.

And that is one way in which zoom info gets their data.

And look, I I live tested this.

I used one of the L MS out there and I said with my prompt, I am a an Aws sales rep who are the 10 people I should reach out to at General Motors and it gave me their names, titles and linkedin profiles.

It's really hard when I can do that for free with a publicly available LLM to pay however much zoom info costs.

What could go right for Zoom?

I mean, because this seems like a pretty negative scenario here.

But what, what could they do?

I think the big thing they need to do is build up the stack, right?

They have this data asset that was differentiated, maybe it's getting more commoditized, but if they can use the large install base, they have and all the data they have and build.

I think really useful value added applications on top of that.

Think about, you know how Aws went up the stack and build all these functionality on top of the core storage and compute.

I think if Zoom info could do that, that could turn things around.

I have not seen evidence that Zoom info knows how to build really good software yet.

Interesting.

Well, we'll be watching for any of that kind of evidence and just to be clear for folks who are watching, you don't have a position in either.

That's right.

I'm not allowed to own any of these.

Good to know here, Rishi.

Thank you so much by hubspot.

Avoid zoom info right now again.

Great to see you in person.

Great to see you.

Thank you coming in and thank you so much for watching.

Goodbye or goodbye.

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