We are short shares of HubSpot, Inc. (HUBS), an unprofitable SaaS company that, despite the recent downward re-rating of the tech sector, still trades at 20x forward revenue. HubSpot is not worth anything close to its current valuation. The company is a COVID beneficiary whose future growth will likely pale in comparison to its pandemic-fueled pull-forward in sales. Its expensive products face an increasing plethora of dramatically lower-priced and often superior alternatives, backed by billions of dollars of free-flowing venture capital. Top executives are selling shares and departing. Naturally, HubSpot doesn’t turn a profit. Should it ever try to, its margins will likely disappoint.

HubSpot made a name for itself more than a decade ago by developing a distinctive approach to online marketing and creating products that were easy to adopt for less tech-savvy users. But the company didn’t garner a super-premium valuation relative to its SaaS peers. That all changed when COVID hit, sending droves of mid-sized businesses in search of ways to quickly improve their online marketing and thereby giving HubSpot a new lease on life – and a significantly higher multiple.

But HubSpot faces difficult challenges as it enters a risky, uncertain new phase of its existence, in which the COVID tailwind will fade and future growth will depend on expansion into already crowded markets. Though HubSpot does have some devoted fans, its core technology – a database that can be used to create customized emails and web pages – is nothing special. Thus HubSpot faces an abundance of both incumbent and up-and-coming competitors, from ActiveCampaign to Klaviyo to Mailchimp (now owned by Intuit) and beyond, each of which has its own strengths and specialties, but all of which testify to HubSpot’s lack of a real moat.

Even if HubSpot’s revenue continues to grow, the company has never really proven that it has a viable long-term business model, keeping itself alive only by selling shares and convertible bonds to investors and by handing out piles of stock to its employees, the cost of which it conveniently excludes from its preferred non-GAAP earnings metrics. Even if it one day achieves its stated “long term” goal of a 20-25% non-GAAP operating margin, that equates to a thin ~9% true operating margin – consistent with its competitive, increasingly commodified end markets and its ongoing reliance on expensive salespeople and developers.

We wonder if, on some level, HubSpot’s leadership agrees with our assessment of the risks ahead. That might explain why, over the past few years, it has lost its chief sales officer, chief operating officer, chief strategy officer, and chief executive officer, many of whom (along with other HubSpot executives and directors) have been busy selling their shares, even at prices far lower than today’s. Perhaps they realize something that the market doesn’t – that HubSpot is in a tough spot.

Read our full report here.