Zhitong Finance App learned that Google's parent company Alphabet (GOOGL.US) may acquire US marketing software manufacturer HubSpot (HUBS.US) with a market value of 31 billion US dollars. This move will enhance Google's ability to compete with Microsoft (MSFT.US) in providing cloud applications to enterprises.

The media reported last month that Google is considering buying HubSpot. Analysts and investment bankers say this will be Google's largest deal and will expand its products and applications to serve businesses.

Google has challenged the dominance of the Microsoft Office platform with its Google Workspace collaboration products. Cowen analyst Derrick Wood said that the acquisition of HubSpot will make Google a competitor in the so-called customer relationship management field, and Microsoft's Dynamics 365 products cater to the needs of this field.

“Google really wants to take market share from Microsoft's productivity suite, and they can use HubSpot to bundle apps for customers,” Wood said.

HubSpot, a company that develops marketing software for small to medium businesses, is looking for ways to keep sales growing amid a general economic slowdown.

HubSpot CEO Yamini Rangan said during the first quarter earnings call this month that customer demand has weakened as small businesses worry about the impact of high interest rates on the economy.

Despite shrinking customer base, HubSpot continued to grow, increasing sales by 23% and operating margin of 15% in the first quarter. However, stock analysts warned that HubSpot's stock price could be hit if it weren't for Google's intention to buy it.

Most analysts lowered their target prices after HubSpot released its earnings report. Goldman Sachs analysts said, “More stringent loan standards could have a huge negative impact on SMEs (HubSpot's customers) getting financing.”

Microsoft is focused on attracting large enterprise customers, while Google is also trying to attract smaller companies, which make up the majority of HubSpot's customer base.

Stifel analyst Parker Lane said that the acquisition of HubSpot will bring valuable sales information to Google and fill the gap in removing the tracking application known as “cookies” from the Chrome browser in the second half of 2024.

“Removing third-party cookies from Chrome... puts more emphasis on first-party data, and HubSpot provides a wealth of data in this regard.”

Artificial intelligence innovation is the core

Alphabet CEO Sundar Pichai and other executives said that Google sees advertising as a key way to make money from its artificial intelligence advancements.

“Artificial intelligence innovation in our advertising ecosystem is central to every aspect of our product portfolio,” Google's chief commercial officer Philipp Schindler said during the company's first quarter earnings call last month.

The deal between Google and HubSpot is likely to face challenges from antitrust regulators, although many experts believe that given the two companies' businesses do not overlap, the merger will not dampen competition.

MorningStar analyst Dan Romanoff said Google might think that the benefits of this potential deal outweigh the possibility of facing regulatory challenges.

Romanoff said, “In the field of cloud computing, Amazon (AMZN.US) is definitely the leader, Microsoft is in second place, and Google is in third place. Google may think that acquiring HubSpot is equivalent to owning Microsoft Dynamics 365, which will make it more competitive in this field.”