Marketing analytics software Semrush (NYSE:SEMR) met Wall Street’s revenue expectations in the third quarter of 2024, with revenue up 23.7% year over year to $97.41 million. The company expects revenue next quarter to be around $101.3 million, close to analyst estimates. GAAP earnings of $0.01 per share were 69.2% below analyst consensus estimates.
Is Now the Time to Buy Semrush? Find out in our full research report.
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Gain: $97.41 million vs. analyst estimates of $96.72 million (in line)
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EPS: $0.01 vs. analyst estimates of $0.03 (missed -$0.02)
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Adjusted operating result: $12.06 million vs. analyst estimates of $11.31 million (6.6% better)
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Revenue guidance for Q4 CY2024 is $101.3 million in the middle, about in line with what analysts expected
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Gross margin (GAAP): 82.5%, in line with the same quarter last year
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Operating margin: 1.8%, compared to 3.5% in the same quarter last year
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Free cash flow margin: 6.3%, compared to 8.4% in the previous quarter
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Net Income Retention Rate: 107%, in line with the previous quarter
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Customers: 117,000, compared to 116,000 in the previous quarter
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Market capitalization: $2.02 billion
Founded by Oleg Shchegolev while he was in college, Semrush (NYSE:SEMR) is a software-as-a-service platform that helps companies optimize their search engine and content marketing efforts.
As the number of places where business listings are maintained (such as addresses, hours and contact information) increases, the task of keeping all listings up to date becomes more difficult, driving demand for centralized solutions that update all touchpoints.
A company’s long-term performance can provide signals about business quality. Even a bad company can perform well for one or two quarters, but a top company grows for years. Over the past three years, Semrush has grown its revenue at a solid annual growth rate of 28%. This is encouraging because it shows that Semrush has been more successful at expanding than most software companies.
This quarter, Semrush’s year-over-year revenue growth was excellent at 23.7%, and revenue of $97.41 million was in line with Wall Street estimates. Management is currently targeting a 21.5% year-over-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 20% over the next twelve months, a slowdown from the past three years. Still, this projection is admirable and shows that the market is taking success into account for its products and services.
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One of the best parts of the software-as-a-service business model (and one reason they trade at high valuations) is that customers typically spend more on a company’s products and services over time.
Semrush’s net revenue retention, a key performance metric that measures how much money existing customers from a year ago are spending today, was 107% in the third quarter. This means that even if Semrush had not acquired any new customers in the last twelve months, its revenue would have increased by 7%.
Semrush has a decent net retention rate, which shows us that its customers not only tend to stick around, but also get more and more value from its software over time.
We struggled to find many strong positives in these results. Customer growth slowed and gross margin fell. Overall, this was a softer quarter. The stock fell 6% to $13.49 immediately after the results.
Semrush didn’t show its best hand this quarter, but does that present an opportunity to buy the stock right now? We think the latest quarter is just one piece of the longer-term business quality puzzle. Quality, in combination with valuation, can help determine whether the stock is a buy. We cover that in our useful full research report which you can read here. It’s free.
