HubSpot, Inc. Price & Performance (HUBS)

That is using unstructured data. Now you can filter that list and only include the deals that were won. That's using structured data. Now you can use the transcripts and summarize the key points that seem to be most effective in winning against that The combination of structured and unstructured data is a game changer and our acquisition of Frame dot ai takes this to a whole new level by doing this in real time. Second, AI agents need more than just data. They need context. Siloed agents that solve task specific problems will fall short just like siloed point applications did. HubSpot's all in one approach unifying a system of record with data a system of engagement with hubs and a system of action with AI powered execution ensures that agents have the context they need across the entire customer journey. Finally, we've been investing in creating a vibrant agent ecosystem. We think the future is about hybrid teams consisting of both people and AI agents working together. To realize this vision, we've been incubating Agent.AI, a project to create a network of AI agents. We've grown the user base of Agent.ai over 10x in six months from 50,000 users at inbound to over 500,000 users and empowered over 5,000 builders to create agents with our low code tool.

By combining the best structured and unstructured data, providing complete context about the customer, and following an ecosystem centric approach we are helping our customers seamlessly shift to the age of AI. Okay. Let me wrap up by highlighting our strategy and the levers for growth that will drive long term success. We are entering this year with more clarity on strategy. More alignment on outcomes, and more urgency in execution than ever before. We will double down on our customer focus and make our products easy, fast, unified and AI first. On the product side, you can expect to see us make meaningful progress with preco pilots, agents, and the AI platform layer that will power all AI offerings. We will continue to build deeper upmarket functionality while making onboarding and ever boarding easier within our product. We are excited to unveil a host of new capabilities at our Spring Spotlight in April and later at inbound in September. Now in terms of growth, we will focus on four key levers. Rep driven growth, with targeted headcount investments that match the opportunity. Improved retention and downgrade driven by more product usage building on the progress we made in 2024.

Thank you.

We had some technical difficulties at the start and I guess the webcast didn't start on time. So some folks missed some of the beginning comments. So we're going to turn it over to Yamini to give us her comments. Again. So she's going to start from the top. Right now. So I'll turn it over to Yomni now.

Thank you, Ryan. And sorry about the technical difficulties. We'll start the call now. Thanks and welcome everyone to the call. I'll begin with our Q4 and 2024 results and the consistent themes drive I want to switch gears and highlight our strong momentum in AI. How we're positioned to lead and win with AI and the multiple growth levers we are activating to drive long term success. Let's dive in.

We had a solid finish to 2024, highlighting our leadership as a platform [indiscernible] Q4 revenue grew 20% year over year in constant currency and full year 2024 revenue grew 21% in constant currency. We delivered another quarter of standout operating profit growth with operating margin of 19% in Q4 and 17.5% for the full year up 200 basis points year over year. We're consistently balancing growth and profitability as we scale. Our customer base expanded to 248,000 globally. With over 9,800 net customer additions in the quarter. These results underscore the trust our customers have in our platform as they consolidate on HubSpot and rely on our innovation to scale in any environment. Beyond the results, what truly excites me are the consistent teams driving our [indiscernible] Our momentum in 2024 was driven by growing multi hub adoption, strong up market and down market success, improvements in retention, and product innovation. 2024 was a defining year. One that cemented our position as a leading customer platform for scaling companies, and marked a transformative leap in our evolution as an AI first platform. We made significant strides with a unified customer Over 35% of our Pro Plus customers by ARR now use four or more hubs, up 7% year over year.

Clear proof of the value of our unified customer platform.

In the Upmarket segment, momentum was driven by product innovation, growing awareness of HubSpot HubSpot a and strong execution with partners our ecosystem. Large deals grew 21% year over year, driven by key product advancements like sensitive data support, UI extensions and CRM development tools for deeper customizations, and enterprise grade service hub capabilities that resonate with larger teams. Awareness of HubSpot as a customer platform improved by seven points globally and our partner ecosystem is driving success. With cold selling increasing by 68% over year. In the down market segment, the pricing model change we introduced combined with AI innovation laid a strong foundation for growth. By lowering initial prices, removing seat minimum, we made it easier for teams to start and grow with HubSpot accelerating customer acquisition, and driving seat upgrades. We also improved the overall experience for starter customers with better onboarding and ever boarding. And finally, retention was a consistent theme in 2024. Our focused efforts across product and customer success teams led to increased usage fewer downgrades and reduced churn. It's really exciting to see customers finding lasting value with HubSpot. And the consistent teams driving our results demonstrate our momentum at the platform. Okay.

Let's switch gears and talk about AI. 2024 was a transformative year for HubSpot's Spot as we reimagined our product, our platform, and our entire company with AI. We are committed to becoming the AI first customer platform by embedding AI into every hub and across the entire platform. To deliver on this vision, we launched a copilot, that gives every customer facing employee a digital assistant to work with. AI agents that handle context sensitive tasks out of the box, and 80 plus AI features embedded within our hubs. Content Hub and AI First Hub launched in early twenty twenty four, was the fastest growing hub of the year. Its attach rate to marketing hub increased from 13% at the start of the year to 54% in December. Driven by the success of Content Remix most popular AI feature. We've continued to innovate with new capabilities like multi input remix podcast, case study remix enabling customers to create impactful content faster than ever. Service Hub is seeing strong upmarket growth driven by AI powered enterprise features. New ServiceHub Enterprise portals grew 100% quarter over quarter in Q4 and customers 54% year over year.

New helpdesk and customer success workspaces with AI features like call summaries, ticket summaries, and reply recommendations, are seeing strong adoption and delivering value to larger teams. Breeze Copilot beginning to crack We now have over 75,000 weekly active users on Copilot. Our customers are adopting Copilot because it's easy to use and in the flow of their work. Unique advantages with HubSpot HubSpot. Breathe agents are beginning to deliver value for customers especially customer agent and content agent, Customer agent is now available to all Service HubSpot Pro Plus customers with over thirteen forty customers using it to achieve an average resolution rate of 42%. We're still in early days, but customers are beginning to see value and as one of our customers Transcribus shared, implementing the customer agent has been transformative. What used to be manual, time intensive process is now streamlined and efficient.

Content Agent is also gaining traction with some of our most active users leveraging it to publish over 80% of their blogs. This is helping businesses optimize workflows and produce more effective content with less effort. While it's still early days for BriscoPilot agents and our embedded AI features, the momentum we built in 2024 with AI is exciting. What is equally exciting is how we are using AI to the way we work internally at HubSpot. By experimenting boldly with AI we're showing our customers what's possible with AI. Our AI support bot now handles over 35% of support tickets while maintaining high customer satisfaction, and we are working to get this to over 50% in 2025. This has enabled us to grow our customer base without adding more support staff. Freeing our team to focus on solving more complex issues. Similarly, our AI sales bots is resolving over 80% of website chat inquiries making our chat teams more efficient while delivering great customer experiences.

And we're transforming sales prospecting AI powered and automated communications generated over 10,000 meetings for our sales teams in Q4 alone AI is helping us work smarter. Serve customers better and lead by example. And this is just the beginning of an exciting journey of transformation with AI. [indiscernible] Our AI efforts are gaining momentum, but the bigger question is, how will HubSpot lead and win in an AI first future? The answer is clear. We will win for three key reasons. First, we unify structure, and unstructured data. [indiscernible] provide complete context across the entire customer journey, And third, we have the industry's most active AI agent ecosystem connecting AI builders and users. First, agents rely on great data to succeed and HubSpot is uniquely positioned here. The need for structured data like customer, company, contact records, and the need for access and reporting on the data does not go away. This is where HubSpot already excels. But agents also need unstructured data The 80% of data in calls, emails and transcripts which reveal deeper insights into customer needs. For example, imagine an agent creating a list of calls that made a reference to a specific competitor, That's using unstructured data.

Now you can filter that list and only include the deals that were won. That is using structured data. Now you can use the transcripts and summarize the key points that seem to be the most [indiscernible] in winning against that competitor. The combination of structured and unstructured data is a game changer and our acquisition of Frame dot ai takes this to a whole new level by doing it in real time.

Second, AI agents need more than just data. They need context. Siloed agents that solve task specific problems will fall short just like siloed point applications did. HubSpot's all on one approach, unifying system of record with data, a system of engagement with hubs, and a system of actions with AI powered execution [indiscernible] that agents have the context they need across the entire customer journey. Finally, we have been investing in creating a vibrant agent ecosystem We think the future is about hybrid teams, consisting of both people and AI agents working together. To realize this vision, we've been incubating AI. AI. AI, a project to create a network of AI agents. We've grown the user base of Agent.ai over 10 x in six months from 50,000 users at inbound to over 500,000 users [indiscernible] empowered over 5,000 builders to create agents with our low code tool. By combining the best structured and unstructured data providing complete context about the customer and following an ecosystem centric approach we are helping our customers seamlessly shift to the age of AI. Okay. Let me wrap by highlighting our strategy and the levers for growth that will drive long term success. We are entering this year with more clarity on strategy.

More alignment on outcomes and more urgency in execution than ever before, We will double down on our customer focus and make our products easy, fast, unified and AI first. On the product side, you can expect to see us make meaningful progress with Breeze Copilots, Breeze Agents and the AI platform layer that will power all AI offerings. We will continue to build deeper upmarket functionality while making onboarding and ever boarding easier within our product. We will we are excited to unveil a host of new capabilities at our Spring Spotlight in April and later at inbound in September. Now in terms of growth, we will focus on four key levers. Rep driven growth, with targeted headcount investments that match the opportunity. Improved retention and downgrades driven by more product usage, building on the progress we made in 2024. Migration to new pricing, creating tailwinds from fleet upgrades and renewal price lift post migration. [indiscernible] ongoing product innovation with AI. Which will be another tailwind for customer acquisition and expansion. Together, these levers provide a clear and sustainable path for long term growth. With that, I'll hand it over to our CFO, Kate Buecker. To walk you through our financial and operating results.

Kate? Thanks, Shaminiti. Let's turn to our fourth quarter and full year 2024 financial results.

Full year 2024 revenue grew 21% year over year in both constant currency and as reported. Full year subscription revenue grew 21% year over year while services and other revenue increased 24%. Both on an as reported basis, Q4 revenue grew 20% year over year in constant currency and 21% on an as reported basis. Subscription revenue grew 21% year over year while services and other revenue increased 36% on an as reported basis.

Q4 domestic revenue grew 19% year over year. International revenue growth was 20% in constant currency and 23% as reported. Representing 47% of total revenue. We added over 9,800 net new customers in Q4 ending the year with a total of nearly 248,000 customers, growing 21% year over year.

Average subscription revenue per customer was $11,300 in Q4 down 1% year over year in constant currency and roughly flat on an as reported basis. Q4 customer dollar retention remained healthy in the high 80s and net revenue retention increased two points sequentially to 104%. Reflecting the continued momentum in seed expansion from customers on the new seats based pricing model. While we're encouraged by the improvements we saw in Q4, we expect to see a seasonal downtick in net revenue retention in Q1. For the full year of 2025, we expect net revenue retention to be up a couple of points year over year largely from the pricing model change we made early twenty twenty four. Calculated billings were $768,000,000 in Q4, growing 21% year over year in constant currency and 16% on an as reported basis.

The significant strengthening of the U. S. Dollar at the end of the quarter and its impact on deferred revenue resulted in an overall five point FX headwind to as reported billings growth.

Remainder of my comments will refer to non GAAP measures. Q4 operating margin was 19%, and full year operating margin was 17.5%. Both up two points compared to the year ago period. This reflects our continued progress in optimizing our product infrastructure, focused hiring and the impact from the changes to our partner commission structure. Net income was $125,000,000 in Q4, or $2.32 per fully diluted share. Free cash flow was $163,000,000 or 23% of revenue in Q4, and $488,000,000 or 19% of revenue for the full year. Finally, our cash and marketable securities totaled $2,200,000,000 at the December. Before I dive into guidance, I wanted to highlight several key inputs to our 2025 growth profile. First, we expect a continued strong foundation of product usage and customer retention. [indiscernible] Our seat space pricing model will benefit 2025 revenue as customers come up for their first renewal post migration.

And we will continue to invest in go to market capacity. Second, while we have seen small business sentiment improve, we continue to see value driven purchase behavior. And we assume that this will be the case throughout the year. Finally, the U. S. Dollar has strengthened meaningfully since we reported Q3 results in November. As a result, at current spot rates, we expect foreign exchange to be in approximately 200 basis point headwind to 2025 revenue growth and a 50 basis point headwind to operating profit margin. With that, let's dive into guidance for the full year and the first quarter of twenty twenty five. For the full year of 2025, total as reported revenue is expected to be in the range of $2,985,000,000 to $2,995,000,000 up 16% year over year in constant currency and 14% on an as reported basis.

Non GAAP operating profit is expected to be between $543,000,000 and $547,000,000 representing an 18% operating profit margin. Non GAAP diluted net income per share is expected to be between $9.11 and $9.19 This assumes 53,900,000.0 fully diluted shares outstanding. And for the first quarter, total as reported revenue is expected to be in the range of $6.97 to $699,000,000 up 15% year over year in constant currency and 13% on an as reported basis. Non GAAP operating profit is expected to be between $98,000,000 and $99,000,000 representing a 14% operating profit margin. We expect a little over a point headwind to operating profit margin in Q1 due to an increase in the company match rates of our four zero one contributions. Non GAAP diluted net income per share is expected to be between $1.74 and $1.76 This assumes 54,100,000.0 fully diluted shares out [indiscernible] As you adjust your models, please keep in mind the following. We are excited with the recent launch and multiyear growth opportunity of our Breeze Intelligence product. We expect a little less than a point of headwind to 2025 revenue Ladies and gentlemen, please remain on your lines. Please remain on your lines.

No, turn off. Operator?

Yes. We can hear you.

Okay. We seem to be having more or technical difficulties here [indiscernible] pick up where she left off on the guidance the technical difficulties here. We'll get through it.

Okay. I'm going to just dive into the key modeling points.

Again, as you adjust your model, keep in mind the following: While we're excited with the recent launch of multiyear growth opportunity of our Breeze Intelligence product, we expect a bit less than a point of headwind to to 2025 revenue growth from the wind down of the legacy Clearbit business. We expect CapEx as a percentage of revenue to be roughly 5% for the full year of 2025 driven primarily by capitalization of software development. And lastly, we expect free cash flow to be about five with seasonally stronger free cash flow in Q1 and Q4.

As we close out 2024, want to take a moment to recognize all HubSpotters for their contributions to our mission of helping our customers grow better. And a big thank you to our customers, partners and investors for the ongoing support. With that operator, let's open up the call for questions.

Certainly. Due to the technical difficulties, we will be extending the Q and A session. If you would like to ask a question, One moment please. Our first question comes from the line of Samad Samana with Jefferies.

Hi, good evening. Know there are technical difficulties, but when I heard loud and clear, the Omni team is that you guys had another very strong quarter. Congrats on that. Maybe let's talk about AI a little bit further, given all the takes there. I want to dig in on what some other software companies have said, especially context of what you're doing around AI, other leading software companies have discussed the change in the modernization plan. AI in the last couple of months. As their products have spent more time in the market. I'm curious how your [indiscernible] Now the customers have had three in their cans and if you see the path to commoditization shifting and maybe related to that Kate, I know your comment on a bit there a bit wide down and a one point headwind how are you thinking about the impact of AI monetization in the 2025 revenue forecast?

If any at all? Thank you both for taking my questions.

Thanks a lot, Samad, and thanks for hanging in with us. And I'm so glad that you heard it loud and clear that we are gaining momentum from an AI perspective. So let me take that question on monetization.

Look, the way we think about AI is that there should be one product. An AI first product, So we don't believe that there should be a [indiscernible] a separate add on for AI. And that has been our strategy from the beginning. That's why our vision has been to embed AI across every hub and across the entire platform. Therefore, our monetization strategy is really about how we drive customer acquisition and expansion across the entire platform with AI, and how we lead and win with AI across the platform. And as I mentioned in my prepared remarks, the success of Content Hub in the last year was AI driven. We improved the attach rate to Marketing Hub by 3x. The traction in Service Hub, especially upmarket is AI driven We're going to continue to drive that type of innovation That strategy is working for us and we have even more conviction as we talk to customers who are in our pipeline and who are in our installed base and we're going to keep doing that.

Now having said that, I do think that the future of pricing for AI will be hybrid. That is we'll have both seat based and usage based pricing, Right now, we're focused on delivering value with our agents and as more customers get consistent value with AI, we will introduce usage based pricing.

Pricing model will be a combination of usage and seat space pricing. But what is really important is that we will consistently focus on delivering value first before adding on to our based model, and then monetizing based on usage. That approach has worked for us.

And will continue to work for us in this approach.

So focus for us remains very clear. Embedding AI across the entire platform, delivering repeat value, and consistently driving innovation that is having really good impact in terms of our pipeline conversations and customer conversations. And Samad, just to answer this specific question on what is assumed for AI and guidance, are going to provide specific assumptions there, but I will share a few things. The first is that we have not assumed any direct agent monetization in our 2025 guidance. That said, we're glad you heard that we are focused on AI. You heard from Yamini that customers are seeing value from AI, that adoption is growing [indiscernible] You see the strong momentum and hear about the strong momentum Content HubSpot sales hub and service hub, that is directly related to the AI features and functionality that we are adding. We are seeing customers increasingly consider AI and their decision making And the assumption is that, that is all going to continue through 2025 and that is what is baked into guidance.

Thank you.

And our next question comes from the line of Mark Murphy with JPMorgan.

Thank you so much.

I would appreciate hearing your perspective on Deepseek and the ability for LLMs to drive a breakthrough on the cost side or the efficiency side. I'm curious whether it's Damesh or Yamini or Kate, what crossed your minds? Can you run these can you run the Breeze agents with a lower inference cost profile if you use one of these very efficient models Do you think you can unleash more power for customers and is there something does it alter what you think on the volume of AI you can provide maybe volume goes up and cost goes down? Any perspective would be great. Sure. This is Damesh. Hi, Mark. Thanks for the question. So a couple of things. One on the kind of COGS side, there was already a dramatic reduction in COGS even before DeepSeq showed up on the scene. And that has now been like a spectacular reduction simply because of increased competition the fact that DeepSeq is an open source and open weights model is kind of driven driven costs down even further. So yes, absolutely there will be a really positive impact on lowering inference costs across the board because everyone as we've already started seeing are going to reduce their reduce their cost for inference.

What's actually even more exciting to me, not that we shouldn't be excited about reduction in COGS, is that these reasoning models, both DeepSeq and OpenAI's three model, really expand the use cases in terms of what agents can take on, what types of goals what kinds of customer problems can we solve because the reasoning models, although they sound similar because they're a large language model, they're very different in terms of the kinds of things they can do. They have chain of thought and they actually take on much more nuanced and sophisticated goals than we were able to do before. So that's super exciting. Thank you.

Thank you. Our next question comes from the line of Brad Sills with Bank of America. Great. Thank you so much. Really exciting see all the progress here with Copilots and agents. I wanted to ask a question [indiscernible] and activity during the quarter. I think that's been the one area where in the current environment you haven't really seen that unlock yet.

You've been pretty clear that downgrades and churn has stabilized here. But curious what your observation was through the quarter? Are you seeing any improvement there in this kind of tone you described as still in kind of value oriented mode amongst SMBs Yes, Brad, thank you so much for the question. Net revenue retention, as you know, was up two points sequentially to 104. But as I shared in the prepared remarks, the biggest driver of that improvement in net revenue retention was from the impact of seat upgrades largely associated with the new seat space pricing model that we launched in like earlier in the year.

Other than the seats based pricing model, you're right. What flows into net revenue retention is net upgrades and downgrades. What you heard from us over the last couple of quarters is that we had seen a stabilization and and easing of the downgrade motion and that was very consistent with what we saw in the fourth quarter. The remaining headwind is upgrades. Other upgrades and that we saw again in Q4 We have seen some improvements in the sentiment externally, but people are still value driven. And I think it's really going to take a big change in the external environment for that other upgrade motion to really move. Understood. Thanks, Kate.

Thank you.

And our next question comes from the line of Arjan Battia with William Blair. Yes, perfect. Thank you and congrats on a strong Q4 here.

Kate, one thing on the margin side, you mentioned the partner behavior change might impact margins here. Can you just elaborate a little bit on how partner behavior is adjusted after you change the compensation model I think that was a couple of years back now. But what are you seeing there? Is it acceleration of revenue?

A better cost structure on your sales and marketing side? That'd be very helpful. Thank you.

Hey, Arjun, this is Yamini. I'm going to take the partner question and walk you through where we are in the process.

So look, as you mentioned, we made some changes to the partner commissions in 2023 And we're very confident that those changes we made will increase the value of our customers get from working with partners.

And specifically, in 2023, we announced that new deals will have a three year commission and existing deals will retire multiyear commissions, lifetime commissions starting in 2025. And so the gist of the changes if you are an existing deal and you're actively engaged with customers, you continue to preserve the commission. But if you're not engaged, the customers, you lose the commissions. And that comes into effect in April for existing deals. Now, we prepared the ecosystem We've been communicating with the ecosystem We've really held hands with the ecosystem and all of the changes and that changes will come to effect in April and that shows up in terms of our numbers. Now in parallel, the thing that I would mention We've been investing pretty heavily in partners who are driving growth. And we have been providing growth funds marketing development funds, increasing the level of enablement efforts and all of that has resulted in much better engagement between partners and our sales teams And you can see that in our co selling with partners. As I just mentioned, co selling grew That is really beginning to work. Thank you.

And our next question comes from the line of Mattoon with Evercore ISI. Yes.

Thanks very much and I'll echo my congrats on the quarter. Kate, could you just provide maybe a little color on how we should be thinking about the guide as it relates to sort of new customer acquisitions over the year relative to ARPC growth. Just given some of the commentary around Service Hub and some of the upmarket momentum, I'm just wondering if there's potentially any change in the way we should be thinking about those metrics? Thanks.

Yes, Kirk, thanks for the question.

Overall, we were really happy with the net adds coming in at 9,800. It's really at the upper end of the 9,000 to 10,000 range that we discussed. There are some we have seen variability quarter over quarter in net additions, but I think this is the right zone at least for the next couple of quarters for your expect The one thing that I would say is that over the last couple of quarters, what we have seen is more of a balanced mix of the new customer profile across the starter tier and the professional and enter the seats model introduction because we eliminated the minimum seats on professional and enterprise. And so the balance that we're seeing is is primarily a result of that. So net adds as we look at 2025, net adds in that nine to 10 ks range is probably right, a higher mix of professional enterprise. I would assume that that keeps happening. And then, what will result is that ASRPC should stabilize in the near term. And then we would expect something that looks more like a low single digit growth in ASRPC as we move into the back half of the year.

Thank you. And our next question comes from the line of D. J. Hynes with Canaccord Genuity.

Hey, good evening guys. Maybe one for Damesh. So one of the questions we've been getting more an AgenTek world is, who becomes the control tower for all these agents if every app in the stack is bringing their own version, right? And maybe that's more of an enterprise issue, but assume the need still exists SMB, even if HubSpot owns a majority of that app estate.

So how do you think about that need? And how is HubSpot positioned to be that control Yes. Thanks for that question. So what we see happening as as the agent platforms kind of evolve is composability becomes super important factor that these agents need to collaborate, discover each other, and work with each other in order to accomplish higher order goals. And so that's what we've been doing with agent.ai is we want to kind of capture that mindshare and have builders build on the HubSpot Agent.ai network. And we just by the way, Yemeni shared the kind of opening comments and said we had gotten from 50,000 to 500,000 users. I'm excited to share as of last night that number across 900,000.

We're seeing some really great uptake. We have enabled 7,000 people to build their own agents on the platform. So the way we see this evolving is similar to how we saw with the original cloud computing that there will be some dominant platforms where all the builders want to aggregate and they're going to want to aggregate where the users are, where the customers are. So we can take our existing kind of customer base, all the contextual data, unified data that we have and make that available to these agent builders along with a low code tool and the distribution mechanism to reach hundreds of thousands of people So we think that's a winning strategy. We're super excited. Thanks for the question. Thank you.

And our next question comes from the line of Jackson Ader with KeyBanc Capital Markets.

Great. Good evening, everybody. Thanks for taking our questions.

If It sounds like you guys are internally adopting a lot of AI. You went through a bunch of different use cases on I think marketing and sales. And so would we expect or do you expect to that to meaningfully impact HubSpot expense growth, obviously for the better. And then if it does, allow you to save some money, where might you redeploy those savings? Thanks.

Yes.

Thanks for the question. I think that Yamini can talk a bit about how we're envisioning the terms of What you'll see in terms of areas for reinvestment is very consistent with the areas where we have driven outsized investment over the last three years The first is really into R and D to continue to drive that innovation engine and fuel growth for the long term. And the second is in the capacity and go to market. We obviously want to invest against the opportunity we see and we feel like this is a year we're adding capacity to our sales force will pay off well. Yes.

And I'll talk about how we're reimagining our own go to market internally As soon as we saw this big Genov AI moment In and we pivoted our product we did the same thing internally and we've been reimagining our go to market for the better part of the last couple of years. And you heard me talk about support That use case is very, very clear. And we've not only improved the resolution rate with AI, we've also been able to take support agents and really leverage them in more complex issues. And so I think we'll continue on that Marketing, huge benefits. We are reimagining our entire marketing strategy with AI. I talked about leveraging it for setting up meetings we're at the early stages even with 10,000 new meetings set up by AI, we are at the very early stages of that. I we can continue to scale that, but not just in the prospecting use case, but really leveraging AI for personalization and through that entire content marketing process. If you look at Trip, our CMO, he's at the forefront of AI and he's doing this not just to reimagine our own marketing, but he's also doing this to educate our customer base on the right ways to apply AI and to get value from AI, and the same thing with sales.

I mean, we're in the early stages of what we can do. We are already leveraging it for discovery, better research, follow throughs, follow ups or chat, and the list goes on. So as much as we are innovating with our product, We are reimagining it for our go to market and that is going to have mid term to long term impacts on on our own level of innovation, but also efficiency.

Thank you.

And our next question comes from the line of Gabriela Borges with Goldman Sachs.

Hi, good afternoon. Thanks for taking my question. Yamini, the Siedira driving value for customers and productivity increases for customers, and then realizing pricing at a later date that's not a new concept for HubSpot. So maybe just remind us your framework what are some of the things you could be looking for to turn on that consumption piece of the pricing model for agents and AI? And how do you think about mapping some of these statistics on productivity to pricing increases further down the line? Yes, Riela, that's a great question. One that we think about all the time. And you're right, like our pricing approach should be no surprise to anybody. Consistently, our pricing philosophy has been innovate extensively, introduce innovation to customers make sure that they're getting consistent value and then drive monetization. Over the years, when we have increased prices for Marketing Hub, Sales Hub, Service Hub, we've never gotten pushback because by the time we do that, we've delivered significant value. So in terms of AI, our approach has been twofold.

First off, platform to have AI features. So embedding AI not actually creating friction at the point of purchase and making it super easy, visible within the product to adopt AI has been the first kind of like step. So last year, I talked a lot about awareness. And I have to say that towards the end of the year, the awareness of AI within HubSpot was significantly higher compared to the beginning of the year. So that's number one. We feel like we've made a lot of progress. The second is adoption.

One of the things that we did with Breeze and the reason we launched [indiscernible] is one, we want it to be easy.

But two, we want it to be recognizable within products. Now if you're going within HubSpot, you can just see these Sparkle buttons, which are AI features and customers click on it, use it, and begin to kind of like get value from it. And those are all the examples that I shared. I think specifically with agents, we launched a set of agents at inbound. It's early stages. We're seeing very good momentum But when we see repeat value, repeat usage of agents, then we'll feel very, very much at ease to add a component for monetization. We're already monetizing AI with our current model. We'll be able to add when we begin to see repeat usage and value from agents and that's our focus for 2025. Thank you.

And our next question comes from the line of Alex Zukin with Wolfe Research.

Hey, guys. Thanks for taking the question. I've got kind of two different ones. Maybe, first for you, just comment on the demand environment exiting the quarter, whether there was a kind of a change post election, just signs of or lack thereof of SMB optimism kind of driving either new tailwinds or creating headwinds as you look at the year. And then I've got a quick follow-up for Darnesh.

Yes, sure, Alex.

Look, I think the we've seen some improvements in the demand environment. And customers are much more open now to talking about growth initiatives. And I probably think it started around September with some of the interest rate changes. Now having said that and like Kate emphasized, a lot of the buying trends remain similar to what we saw last The decisions are value driven. It's committee based decisions and most of these decisions are made by C suite and the Board level. And we're just going to assume that part of customer buying patterns continue to exist. Now when I look at the demand environment and when I look at our pipeline, a few trends are very encouraging. First off, when customers are looking at marketing or sales or service, in the mid market company, we are in consideration. We have seated the table. We've emerged as a platform of choice. And our AI first, easy to use, fast time to value, value proposition really resonates within the segment.

The second when customers start with HubSpot HubSpot, they're now starting multi hub. And they continue to consolidate on HubSpot both to optimize their cost and to increase the visibility and to drive And we're having more conversations now about AI innovation within our roadmap. And customers love the fact that it's embedded within AI there's no friction for them to buy a separate SKU and they begin to use it, they get value out of it. And we're seeing all of those as encouraging trends. So our focus is to drive the space of AI innovation. To communicate the value of our AI first platform and to help customers grow in any environment.

Perfect. And then maybe just one, Damesh, a longer form question for you. Basically, if you look at what the foundation model companies can continue to do at the edge of what's possible with agents and software development, How do you view that there's this consistent I'd say, anxiety level in the investor community around the evolution of like DIY AI and software Jinsen, Agentic, versus kind of packaged software? And I'm referring specifically I guess to the sales agent demo from OpenAI. Recently. Like how do you think about a world where the center of gravity kind of stems from having this holistic record plus intelligence plus agentic workflow system that HubSpot embodies versus what a future where maybe that's more in the present of what the foundation model companies are doing? Sure. Thanks for the question. Just A quick high level thought is that, just like we saw with cloud computing, there will always be kind of mega corporations that take a DIY approach. I said, oh, we want to build our own software, we want to build our own agents, we want to build our own everything. We see the exact opposite happening in SMB. SMBs do not have the appetite to go off and try and build and assemble all these pieces together regardless of how easy it becomes.

So my personal belief is that in the SMB world, what's going to be super important is what's always been important is ease of adoption fast time to value and they want something that's unified all put together. What we see playing out is that at a platform level, we envision an entire new generation of what used to be sort of agencies and kind of development companies, software companies, building on top of a common core platform like HubSpot is going to provide. And we think that's the actual answer. SMBs will say, I want one core platform, I want everything done for me and I'd love to see an ecosystem of thousands of possible agents that are tailored for my industry or for my business that we can piece it all together all in one That's how we see it shaping up.

Thank you.

And our next question comes from the line of Brian Peterson with Raymond James.

Thanks and congrats on the strong quarter. So I wanted to double click on that 68% growth in co selling that you guys mentioned. That's a pretty impressive stat. Did the mix of channel touch business change over the course of 2024? Is there any commonality that you can share on what drove the strength of channel partners? Thank you.

Thank you, Brian. I appreciate the question. Yes, we are very thrilled to see the co selling kind of take off and we're very happy with the results there. I'll say that this has been multiple years in the making. We went to our partner ecosystem and we said, we want you to source co sell and service our partners as ex field And we've really helped them go from way back marketing agencies to CRM implementers. And as we did that, we've really focused those partners on upmarket. So a lot of the benefit that we're now seeing is like a multi year arc that we have been working with our partner ecosystem And if we look at specifically 2024, we got much better at working upmarket joint customer pursuits with our partner ecosystem. Our product got better and we are enabling both our sales teams as well as the partner ecosystem to understand the full benefit of multi hub adoption. And so they're selling more multi hub deals and implementing multi hub deals up market with those customers. And we are now talking to them about being an AI first ecosystem. And then they are leaning into it front and center with us and they see the opportunity of not just being in a customer platform, but being an AI first ecosystem in an in an ecosystem like us and they see the huge benefit associated with it.

So it's been multi years in the making and there's an even bigger opportunity as an AI first ecosystem ahead.

Thank you.

And our next question comes from the line of Ryan McWilliams with Barclays.

Hey, good morning. Thanks for taking the question. Can you just remind us how you expect your installed base to receive the pricing increase and how that can layer in through 2025? [indiscernible] Sure. Appreciate the question. I think as we covered at the Analyst Day, we have started to migrate our existing customers from the legacy pricing model onto the new seats based pricing model. That has happened for the Simplist customers through the back half of twenty twenty four and we will continue to drive the migration of the customer base through 2025 All of our customer base we intend to have migrated to the new pricing model by the end of this year. Now that said, the price increase for existing customers happens when they come up for renewal after they are migrated. So they are migrated over at a neutral ARR and then they can receive up to a 5% increase in pricing upon their first renewal. We are, as you can imagine, then earlier on, in the sort of renewal motion for cost customers post migration. We're pretty early there still.

And the expectation is that between $50,000,000 and 6% of our ARR will have gone through that first renewal by the end of this year.

Thank you.

And our next question comes from the line of Rishi Jaluria with RBC Capital Markets.

Wonderful. Thanks so much for taking my question. I wanted to ask maybe something a little bit more longer term focus. So great to see this momentum with AI. A lot of times when we're talking AI, it's a focus on greater efficiency, greater productivity. But if we really think about prior technological waves, what really gets these waves exciting is the technological unlock, whether it's the Internet, mobile or cloud.

And so we think about some of your the early work you're doing in this, where are you seeing the ability to unlock those net new use cases for HubSpot HubSpot you can do things with generative AI that you couldn't do before And as we think about what does this mean architecturally down the line, how should we be thinking about kind of your ability to pivot to these new architectures as a result?

I like that question a lot. That is exactly how we're thinking about it. Look, I talked about Frame. It's a recent acquisition and this is emblematic of the kinds of things that we can now unlock Frame will allow our customers to get much better insights from unstructured data. But if you really step back and think about it, generative AI made it possible to ask questions of structured data things like company, contact, deal status, and you get back answers in natural language. That was the first breakthrough.

But there is another bigger breakthrough with unstructured data. 80% of all customer conversations are unstructured. They're in calls. They're in emails. They are in transcripts, and that flows through the company every single day. And it is now possible to ask evergreen questions of that data and to get better insights in real time and in natural language to convert those insights into action.

So So I think that's a huge unlock by one, bringing structured and unstructured data together, which is exactly what we are doing. The second part of the shift is it's not just important to have these two pieces.

You need a context layer on top of it. And think of it as a knowledge layer on top of that data And the easiest way to think about this is the new become an employee within a company, you know the tone of the company, the voice of the company, the ideal customer profile, the value proposition, all of that is context on top of that data We're building that and we're building that knowledge layer right on top of that data fabric of structured and unstructured data And the fact that we have 1,800,000 weekly active users that are bringing this data and collaborating, that gives us a huge benefit from an architectural perspective. And then the third layer on top of that is just orchestration. How do you get feedback daily and how do you learn from the feedback in terms of what customers are using, we're building that. And I do think one of the things that we haven't talked about is the UI is going to change. We're going to see a lot more composable UI that sits on top of all of that data in an agentic future and we're already reimagining all of that.

And so I think the combination of structured and unstructured data the ability to go broad across the customer journey while going deep in a function, which we have and the ability to kind of like run at the pace that startups are going. We're innovating like a startup. And so the architecture is changing. We're what's there with it and I'm so excited about what this unlocks for our customers. Thank you.

We have time for one last question. That comes from the line of Michael Turrin with Wells Fargo.

Hey, thanks for for fitting me in and extending the call. Appreciate the context or attention [indiscernible] encouraging.

I wanted to see if we could hear you maybe compare and contrast both what HubSpot saw Q4 this year versus last year in terms of just end of year decision making? And then in guidance for Q1, is there any extra conservatism you're embedding given I think Q4 to Q1 there was a change last year that many saw that took us all a bit by surprise, which is wondering how you're applying some of the lessons learned there last year and incorporating those into The upcoming guide for the year.

Yes. Why don't I take a shot at this? I think what we saw in Q4 last year was a really significant change in the trajectory of buying behavior. That is not what we saw this year. There is typically a flush of business at the end of the year. We did see that in 2024. But what we saw was more of a continuation of Q3 then something new and different in Q4.

That said, I think when you look at the guidance for 2025, the most important thing to remember is that in a SaaS business like HubSpot, when you the revenue growth is a lagging metric, right? And so What we are seeing is a trajectory change in buying behavior throughout the back half of the year, but it's going to take a while for it to flow through to revenue. And so yes, we are expecting a step down in our constant currency growth rate in the first We also expect that our Q1 constant currency revenue growth will be the low point for the year.

And that our revenue growth rate will accelerate a bit throughout 2025.

Thank you. This concludes the HubSpot Q4 twenty twenty four earnings call.

Thank you to everyone who was able to join us today. [indiscernible] Well, that came to the city.

I was rolling