Google acquiring HubSpot would bolster bid to challenge Microsoft
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[May 23, 2024] By
Milana Vinn
(Reuters) - Google parent Alphabet's potential acquisition of HubSpot, a
U.S. marketing software maker with a market value of $31 billion, would
boost its ability to compete against Microsoft in offering cloud-based
applications to companies.
Reuters reported last month that Google was exploring an offer for
HubSpot. Such a deal would be Google's biggest, expanding its products
and applications that serve businesses, analysts and investment bankers
said in interviews.
Google is already challenging the dominance of Microsoft's Office
platform through its Google Workspace collaboration offerings. Buying
HubSpot would make Google a competitor in the so-called customer
relationship management sector, which Microsoft caters to with its
Dynamics 365 products, said Cowen analyst Derrick Wood.
"It does appear that Google has aspirations to try to take market share
from Microsoft in the productivity suite, and they can use HubSpot to
bundle applications together for clients," Wood said.
Representatives for Google, HubSpot and Microsoft did not respond to
requests for comment.
HubSpot, which makes marketing software for small and medium-sized
businesses, is seeking ways to maintain sales growth in the face of a
wider economic slowdown.
HubSpot CEO Yamini Rangan said on the company's first-quarter earnings
call this month that client demand had weakened, as small businesses
fret about the economic impact of high interest rates.
HubSpot has maintained growth despite clients downsizing, reporting a
23% rise in sales and 15% operating margin in the first quarter.
However, equity analysts have warned that its shares would have taken a
hit were it not for Google's acquisition interest.
Most analysts covering HubSpot lowered their price target on the stock
following its latest earnings report. Some have warned that the
company's niche in serving smaller businesses, which sets it apart from
bigger enterprise competitors such as Salesforce and Oracle, could
become a weakness if a downturn makes financing harder to secure for
those clients.
"Tighter lending standards could have an outsized negative impact on
access to funding for small and medium-sized businesses (that are
HubSpot's clients)," Goldman Sachs analysts wrote in a note on May 9.
HubSpot specializes in so-called "inbound marketing," in which the
consumer initiates engagement with a brand. HubSpot clients use its
software to produce advertising content that consumers click on online
or follow up on.
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Microsoft logo is seen at the Mobile World Congress (MWC) in
Barcelona, Spain February 27, 2024. REUTERS/Bruna Casas/File Photo
Inbound marketing largely relies on search engines and social media
to attract customers and convert them into leads, offering many
synergies with Google, whose parent Alphabet also owns popular video
streaming service YouTube.
While Microsoft has focused on attracting big corporate customers,
Google has sought to also appeal to smaller companies, which make up
the bulk of HubSpot's client base.
Acquiring HubSpot would deliver Google a trove of valuable sales
leads, filling a gap as it removes tracking applications known as
"cookies" from its Chrome browser in the second half of 2024, said
Stifel analyst Parker Lane.
"Purging third-party cookies from Chrome ... places a greater
emphasis on first-party data, which HubSpot bring an abundance of to
the table," Lane said.
AI IN ADVERTISING
Alphabet CEO Sundar Pichai and other executives have said that
Google views advertising as a key route to making money off its
advances in artificial intelligence.
"AI innovation across our ads ecosystem is core to every aspect of
our product portfolio, from targeting, bidding, creative,
measurement, and across campaign types," Google's Chief Business
Officer Philipp Schindler said during the company's first-quarter
earnings call last month.
Google clinching a deal for HubSpot would risk a challenge from
antitrust regulators, even as many experts agree the tie-up would
not curb competition given the lack of business overlap in the two
companies. This is because of regulators' growing aversion to
technology giants getting bigger through acquisitions.
MorningStar analyst Dan Romanoff said Google could decide the
potential deal's benefits outweigh the possibility of a regulatory
challenge.
"Amazon is the clear leader in the cloud, Microsoft is No. 2 and
Google is kind of distant third. One can imagine Google saying, 'If
we buy HubSpot, that'd be like having Microsoft Dynamics 365, so
it'll make us more competitive there,'" Romanoff said.
(Reporting by Milana Vinn in New York; Editing by Greg Roumeliotis
and Richard Chang)
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