In the second quarter of 2025, TimesSquare Capital Management's U.S. Focus Growth Strategy experienced a drag on its performance from HubSpot, Inc. The investment firm's letter to investors indicated that while HubSpot, a leading provider of cloud-based customer relationship management (CRM) solutions, did see its revenues and earnings slightly exceed projections, the magnitude of this outperformance was not as significant as in previous periods. The management of HubSpot subsequently raised its guidance for the year, yet this positive adjustment was primarily attributed to favorable foreign exchange rates rather than a robust improvement in core business fundamentals. This situation underscores the intricate interplay between macroeconomic factors and company performance, even for established players in the technology sector.
TimesSquare Capital Management, a prominent equity investment firm, released its second-quarter 2025 investor letter detailing the performance of its “U.S. Focus Growth Strategy.” The quarter saw robust double-digit returns across equities, fueled by an expansion in global economic activity. Growth indexes demonstrated superior performance compared to their value counterparts. Various global risk factors, including Beta, Momentum, and Residual Volatility, were significantly rewarded, while factors such as Earnings Quality, Value, and Growth exerted a negative influence. Notably, within the U.S. small and mid-cap growth indexes, superior returns were observed in stocks characterized by either elevated valuations, negative earnings, or low returns on equity. Against this dynamic market backdrop, the strategy delivered a gross return of 11.79% and a net return of 11.56%, trailing the Russell Midcap Growth Index's impressive 18.20% return.
HubSpot, Inc. (NYSE: HUBS) was specifically highlighted in TimesSquare Capital's second-quarter 2025 investor letter due to its negative contribution to the strategy. HubSpot, known for its comprehensive cloud-based marketing, sales, and client service platform, recorded a 13.79% return over one month. However, its shares declined by 0.69% over the preceding 52 weeks. As of September 10, 2025, HubSpot's stock closed at $489.18 per share, giving the company a market capitalization of $25.776 billion. Despite these mixed short-term results, HubSpot reported solid second-quarter performance with an 18% year-over-year revenue increase in constant currency terms.
The slight underperformance relative to expectations and the reliance on foreign exchange for improved guidance led to HubSpot detracting 2% from the strategy's overall returns. While HubSpot's fundamental business remains strong, evidenced by its revenue growth, the investment firm noted that its contribution was less impactful than other holdings. This outcome suggests that even companies with positive growth can face headwinds that affect their relative performance within a diversified portfolio, especially when market dynamics favor specific risk factors over traditional growth metrics.
Despite its presence in numerous hedge fund portfolios—56 at the end of the second quarter, albeit down from 61 in the prior quarter—HubSpot, Inc. is not among the 30 most popular stocks favored by hedge funds. While acknowledging HubSpot’s investment potential, TimesSquare Capital suggests that certain artificial intelligence (AI) stocks may offer greater upside and lower downside risk. This perspective underscores a strategic shift towards emergent sectors believed to hold more significant growth catalysts and better risk-reward profiles in the current investment climate.