- Semrush Holdings Inc. published Q1 results that beat expectations.
- The online visibility management company recorded strong growth in revenue, ARR, and customer numbers after their IPO in March.
- Semrush is a beneficiary of a wider shift towards online business interactions, driving up demand and underpinning a steady earnings outlook for 2021.
Online visibility management company Semrush (SEMR) had a good Q1’21 out the gate. Their revenue was $40M (+44% year-on-year), which beat consensus of $37.6M. Annual recurring revenue (an important metric for SaaS companies) was $167.6M, up 54% year-on-year. The company comfortably outperformed consensus on net income and free cash flow (which moved into positive territory), and Earnings Per Share, which now stands at $0.02, rather than the net loss analysts anticipated.
Semrush’s SaaS platform helps businesses and brands be seen and found by their customers on the web. The company’s customers range from colossal Fortune 500 companies like Tesla, Nike, General Electric, Walmart and Marriott to small businesses. The Semrush ‘secret sauce’ is helping these businesses and brands find the right audience amid an increasingly competitive online environment.
(Source: Seeking Alpha)
Semrush reported its Q1 earnings on May 11 after close of market, with strong growth in revenue as mentioned.
An important development was per customer ARR (‘average check’), which grew during the period thanks to tier upgrades, add-on sales and seat growth, according to the company. Paying Customers growth rose by 31% year-on-year, an acceleration from 25%/22% growth in Q4’20/Q3’20.
The company issued conservative guidance for Q2 and FY’21 given the significant growth in ARR, total paying customers, and ARR per customer (Average check), and a net retention rate of 116% in Q1.
The Big Picture
To my mind, Semrush – in addition to a strong business model – has benefitted from three significant tailwinds: the digitisation of customer interactions, a megatrend towards data-driven marketing, and the short-term effect of the pandemic in driving up demand for online services.
The shift towards digital customer interactions began long before COVID-19, but the pandemic has acted as a catalyst, launching digital adoption ahead by 6 years according to McKinsey. Semrush offers its customers services like search engine optimisation and pay-per-click, which are increasingly valuable to businesses hoping to extend their reach.
Semrush’s value proposition suggests that their company is built on targeted marketing, and not just quantity. According to WeAreSocial, the average consumer now spends almost 7 hours per day online and they are bombarded with information. Semrush believes that these days it’s easy to have a voice online, but it’s increasingly hard to be heard. Semrush’s platform helps businesses do just that: be heard, seen and found online by the right audience in the right channels.
The company has launched a constellation of new functions since their IPO, including an App Center (a marketplace for third-party developers), which it hopes will help it stay ahead of the curve. Semrush has been included in G2’s annual list of Best Global Software Sellers for 2021, ranking #26 alongside companies such as Microsoft, Google, Zoom, Slack and others.
In a world where data is increasingly important, Semrush has it in spades: their Backlinks database now contains more than 41.2 trillion links, up +52% from the previous year. They also launched a Core Web Vitals report within their Site Audit tool this Quarter, allowing users to measure user experience according to Google Core Web Vitals.
In terms of risks, analysts have pointed to a competitive market, a difficulty in turning free members into paying customers, and a relatively unknown management team.
Analysts seem optimistic about Semrush’s future, with bullish ratings from Wall Street and Seeking Alpha Authors. In light of the company's strong first quarter, I’ll add my voice to that chorus.
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