Similarweb Pursues $160 Million U.S. IPO

Summary

• Similarweb has filed proposed terms for a $160 million IPO.
• The firm provides a SaaS solution for monitoring websites and improving marketing results.
• SMWB has grown quickly in an industry with positive growth dynamics and the IPO appears reasonably valued, so is worth consideration.
• Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »

Photo by Tero Vesalainen/iStock via Getty Images

Quick Take

Similarweb (NYSE:SMWB) has filed to raise $160 million in an IPO of its ordinary shares, according to an F-1/A registration statement.

The firm provides a SaaS platform for website monitoring, marketing and analytics.

SMWB is growing quickly, operating in a growing industry and the IPO appears reasonably valued, so is worth a close look.

Company & Technology

Tel Aviv-Yafo, Israel-based Similarweb was founded to assist companies of all sizes in analyzing their website traffic to improve their online marketing results.

Management is headed by co-founder, and CEO Or Offer, who was previously a founding partner at AfterDownload which was later acquired by IronSource.

Below is a brief overview video of SimilarWeb:

Source: SimilarWeb

The company’s primary offerings include:

• Digital Research - understand trends

• Digital Marketing - increase user acquisition

• Shopper Intelligence - improve conversion rates

• Sales Intelligence - increase sales pipeline

• Investor Intelligence - monitor investment opportunities

Similarweb has received at least $165 million in equity investment from investors including Anglo-Peacock, Viola Group, NNV Holdings, ICP S1, S-WEN SPV and Yossi Vardi.

Customer/User Acquisition

The firm offers a free version and paid levels based on feature set, geographic coverage and number of users to a variety of business sizes.

The company tracks digital activity for 210 industries in 190 countries and obtains 49% of its annual recurring revenue [ARR] from customers who spend $100,000 per year or more.

Sales and Marketing expenses as a percentage of total revenue have risen as revenues have increased, as the figures below indicate:

Sales and Marketing	Expenses vs. Revenue
Period	Percentage
Three Mos. Ended March 31, 2021	66.6%
2020	57.4%
2019	55.2%

Click to enlarge

Source: Company registration statement

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, was stable in the most recent reporting period, as shown in the table below:

Sales and Marketing	Efficiency Rate
Period	Multiple
Three Mos. Ended March 31, 2021	0.4
2020	0.4

Click to enlarge

Source: Company registration statement

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth trajectory.

SMWB’s most recent calculation was only 4% as of March 31, 2021, so the firm needs to improve in this regard, per the table below:

Rule of 40	Calculation
Recent Rev. Growth %	43%
EBITDA %	-39%
Total	4%

Click to enlarge

Source: Company registration statement

The firm reported a net dollar retention rate of 115% for customers of $100,000 ARR or greater. A figure higher than 100% indicates the company is generating additional revenue from the same customer cohort, period over period.

This shows that the firm’s service has good product/market fit and its sales & marketing efforts are efficient, resulting in negative net churn, an important metric for subscription-based software services.

Market & Competition

According to a 2021 market research report by Mordor Intelligence, the global market for web analytics was an estimated $3 billion in 2020 and is forecast to exceed $7 billion by 2026.

This represents a forecast very strong CAGR of 15.2% from 2021 to 2026.

The main drivers for this expected growth are a continued rise in the automation of online marketing and growth in online shopping by consumers and businesses.

Also, the COVID-19 pandemic will likely provide a significant boost to web analytics providers as businesses demand more information about their online properties to cater to more customers performing buying activities online.

North America is forecast to continue to provide the highest demand of any region worldwide, although the Asia Pacific is expected to grow demand at the fastest rate through 2025 as the chart shows below:

(Source)

Major competitive or other industry participants include:

• SEMrush

• AppAnnie

• Google

• Facebook

• Microsoft

• Adobe Systems

• SAS

Financial Performance

Similarweb’s recent financial results can be summarized as follows:

• Growing topline revenue

• Increasing gross profit and gross margin

• Increasing operating losses

• A swing to positive cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Three Mos. Ended March 31, 2021	$ 29,413,000	42.8%
2020	$ 93,486,000	32.4%
2019	$ 70,590,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Three Mos. Ended March 31, 2021	$ 23,140,000	49.8%
2020	$ 72,069,000	43.9%
2019	$ 50,078,000
Gross Margin
Period	Gross Margin
Three Mos. Ended March 31, 2021	78.67%
2020	77.09%
2019	70.94%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Three Mos. Ended March 31, 2021	$ (11,551,000)	-39.3%
2020	$ (19,674,000)	-21.0%
2019	$ (16,112,000)	-22.8%
Net Income (Loss)
Period	Net Income (Loss)
Three Mos. Ended March 31, 2021	$ (12,114,000)
2020	$ (21,996,000)
2019	$ (17,707,000)
Cash Flow From Operations
Period	Cash Flow From Operations
Three Mos. Ended March 31, 2021	$ 2,329,000
2020	$ (3,760,000)
2019	$ (9,692,000)
(Glossary Of Terms)

Click to enlarge

Source: Company registration statement

As of March 31, 2021, Similarweb had $38.3 million in cash and $128.5 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2021, was negative ($3.3 million).

IPO Details

Similarweb intends to raise $160 million in gross proceeds from an IPO of its ordinary shares, offering 8 million shares at a proposed midpoint price of $20.00 per share.

Shareholders ION Crossover Partners and affiliated funds have indicated a non-binding interest to purchase shares of up to $30.0 million in the aggregate at the IPO price.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $1.3 billion, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 10.77%.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds from this offering for general corporate purposes, including sales and marketing, technology development, working capital, operating expenses and capital expenditures. We may also use a portion of the proceeds to acquire or invest in businesses, products, services or technologies; however, we do not have agreements or commitments for any material acquisitions or investments at this time. (Source)

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are J.P. Morgan, Citigroup, Barclays, Jefferies, JMP Securities, Oppenheimer & Co. and William Blair.

Valuation Metrics

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]	Amount
Market Capitalization at IPO	$1,485,763,120
Enterprise Value	$1,321,828,120
Price / Sales	14.52
EV / Revenue	12.92
EV / EBITDA	-51.94
Earnings Per Share	-$0.37
Float To Outstanding Shares Ratio	10.77%
Proposed IPO Midpoint Price per Share	$20.00
Net Free Cash Flow	-$3,306,000
Free Cash Flow Yield Per Share	-0.22%
Revenue Growth Rate	42.77%
(Glossary Of Terms)

Click to enlarge

Source: Company Prospectus

As a reference, a potential partial public comparable to SMWB would be SEMrush (SEMR); below is a comparison of their primary valuation metrics:

Metric	SEMrush (SEMR)	Similarweb (SMWB)	Variance
Price / Sales	14.58	14.52	-0.4%
EV / Revenue	17.77	12.92	-27.3%
EV / EBITDA	-476.17	-51.94	-89.1%
Revenue Growth Rate	35.6%	42.77%	20.25%
(Glossary Of Terms)

Click to enlarge

Source: Company Prospectus and Seeking Alpha

Commentary

Similarweb is seeking public investment capital for its general corporate growth initiatives and hasn’t provided any further details.

The company’s financials show strong topline revenue growth and gross profit growth as well as increasing gross margin.

However, operating losses have increased as have net losses. Operating cash flow swung into positive territory in Q1 2021.

Sales and Marketing expenses as a percentage of total revenue have increased as revenues have grown; its Sales and Marketing efficiency rate was flat at 0.4x in recent periods.

The market opportunity for providing online tracking and marketing ‘intelligence’ is significant and expected to grow at a strong 15.2% through 2026, so the firm has positive industry dynamics in its favor.

J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 52.8% since their IPO. This is a top-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the continual pace of innovation in the industry, requiring it to invest in R&D efforts and make the firm subject to strong competitive pressures, which may pressure pricing and therefore margins.

As for valuation, compared to partial comparable SEMrush, the IPO appears reasonably priced on a revenue basis and topline revenue growth basis.

Despite the increasing operating and net losses, given the firm’s growth trajectory, industry prospects and existing investor interest in the IPO, it is worth a close look.

Expected IPO Pricing Date: May 11, 2021

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.