HubSpot CEO Clarifies “Challenging Times Ahead” Remark

Despite the layoffs, HubSpot’s earnings beat expectations

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HubSpot CEO Clarifies
CRMLatest News

Published: February 17, 2023

Charlie Mitchell

Yamini Rangan, CEO of HubSpot, has reassured investors of a bright outlook, despite warning of “challenging times ahead” in an email to employees.

Rangan sent the email when announcing that the CRM stalwart would lay off 500 employees, which represents seven percent of its workforce.

In making the statement, Rangan wrote:

Unfortunately, the level of uncertainty in customer demand now tells us that we may have more challenging times ahead. We need to set ourselves up to weather this storm.

Such comments suggested that perhaps the worst is yet to come, and analysts were quick to pick up on this during a recent earnings call, asking for more context regarding the remark.

Instead of giving a gloomy outlook, Rangan stated that the “challenging times” would include a continuation of the current macroeconomic environment.

“We saw deal cycles lengthening. We saw more decision-makers involved. We saw more scrutiny of deals and budgets before approvals,” stated the HubSpot CEO. “Q4 did not get better, but it did not get materially worse.”

What we have assumed is that the demand environment will remain challenging going into 2023.

Supporting Rangan’s assertion, HubSpot’s Q4 earnings remained steady, beating forecasts.

A Promising Quarter for HubSpot

HubSpot grew its Q4 revenues by 35 percent year-over-year (YoY) in constant currency.

After the announcement, its stock rose 13 percent, which underlines invigorated investor confidence in its prospects.

Moreover, market analyst Gartner recently predicted that enterprise technology spending will remain “recession-proof” despite economic tailwinds.

Its research also suggests that shifting IT budgets are not the cause for the layoffs sweeping the industry. Instead, it appears many SaaS businesses became over-optimistic in their post-pandemic growth forecasts.

Rangan admitted that HubSpot made that very same mistake, seemingly prioritizing growth over profitability. She stated:

We had areas within the business where headcount had grown faster than revenue, areas like recruiting and services. And, even when we consider 2023 growth, we had that excess capacity.

As such, HubSpot made the layoffs to better align its people, resources, and growth strategy.

However, the CRM vendor did not infer that its go-forward strategy had changed in any way – as some of its industry rivals have.

Instead, Rangan doubled-down on commitments to invest in product innovation and the efficiency of HubSpot’s own internal systems.

Tech Job Losses Are Not Only a Cost-Cutting Decision

Rangan keenly emphasized during the earnings call that the layoffs equated to much more than a cost-cutting decision.

As alluded to above, they were rather the result of a “strategic realignment” between its people and investments.

Such comments again emphasize its commitment to profitability over growth.

Interestingly, new activist investors at HubSpot’s chief CRM rival, Salesforce, are seemingly forcing its CEO’s – Marc Benioff’s – hand into making a similar commitment.

Indeed, the vendor engaged in more substantial layoffs than HubSpot, primarily impacting Slack and MuleSoft, parts of the business that somewhat detract from its core business.

Indeed, The Register recently reported: “There’s no more Slack left to cut.”

If its competitors that also announced layoffs – such as HubSpot –follow its lead and take emphasis off “side hustles”, this may slow the trend of converging CX systems.

Nevertheless, Zoho recently went against the grain, moving into UCaaS. As for all the other CRM players and their strategies, only time will tell.

Learn more about investor pressure at Salesforce by reading our article: Salesforce Layoffs Continue as It Grapples with Its Family Values

 

 

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