News

Shares of digital-marketing software company HubSpot (NYSE: HUBS) fell 19.1% this week as of 12:30 p.m. EDT Friday, according to data from S&P Global Market Intelligence.

HubSpot fell even though the broader markets were positive this week. But in this case, HubSpot's weekly decline didn't have anything to do with fundamentals but rather a rumored acquisition of the company that now appears to be off the table. But is the pullback a buying opportunity?

Reports: Alphabet backs away

Back in April, a Reuters report said that HubSpot and Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) were in advanced talks around an acquisition. Unsurprisingly, HubSpot rallied on the news back then, as it was anticipated the deep-pocketed Google would pay a substantial premium. Then in late May, CNBC also confirmed the talks between Alphabet and HubSpot were still on.

However, according to a Bloomberg report on Wednesday of this week, that deal now appears to be off, with Bloomberg saying that the deal didn't even make it to the substantial due-diligence phase.

Such a deal would make sense; HubSpot's digital-marketing software would likely make a nice fit for many YouTube personalities and other small business owners that use Google Search and other Google digital-ad properties. But there were likely big obstacles as well. One, the deal would have been Alphabet's largest in its history, putting pressure on management to assure its success. Related to that, a proposed deal would have likely spurred a substantial challenge from federal regulators. Of note, Alphabet is already involved in two lawsuits with the Department of Justice, and the current administration's Federal Trade Commission (FTC) has generally been hostile to large mergers.

Therefore, HubSpot's weekly decline is likely due to it losing that acquisition premium that may have been built into the stock price.

Should HubSpot investors be worried?

The canceling of the acquisition doesn't appear to have anything to do with HubSpot's business fundamentals but rather the prospects for the acquisition to make it through the finish line. Therefore, HubSpot investors should be encouraged in that respect.

Yet in the wake of the post-cancellation sell-off, analysts are still divided, with some thinking the sell-off makes for an attractive entry point, while others have questions as to whether HubSpot's growth is enough to justify a valuation of 11 times sales. For those bullish or bearish on HubSpot prior to this week, this week's events shouldn't have changed your mind one way or the other.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein and/or his clients have positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and HubSpot. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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