Marketing analytics software Semrush (NYSE: SEMR) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 23.7% year on year to $97.41 million. The company expects next quarter’s revenue to be around $101.3 million, close to analysts’ estimates. Its GAAP profit of $0.01 per share was 69.2% below analysts’ consensus estimates.
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Semrush (SEMR) Q3 CY2024 Highlights:
- Revenue: $97.41 million vs analyst estimates of $96.72 million (in line)
- EPS: $0.01 vs analyst estimates of $0.03 (-$0.02 miss)
- Adjusted Operating Income: $12.06 million vs analyst estimates of $11.31 million (6.6% beat)
- Revenue Guidance for Q4 CY2024 is $101.3 million at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 82.5%, in line with the same quarter last year
- Operating Margin: 1.8%, down from 3.5% in the same quarter last year
- Free Cash Flow Margin: 6.3%, down from 8.4% in the previous quarter
- Net Revenue Retention Rate: 107%, in line with the previous quarter
- Customers: 117,000, up from 116,000 in the previous quarter
- Market Capitalization: $2.02 billion
Company Overview
Started by Oleg Shchegolev while still in university, Semrush (NYSE: SEMR) is a software as a service platform that helps companies optimize their search engine and content marketing efforts.
Listing Management Software
As the number of places that keep business listings (such as addresses, opening hours and contact details) increases, the task of keeping all listings up-to-date becomes more difficult and that drives demand for centralized solutions that update all touchpoints.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Semrush grew its sales at a solid 28% compounded annual growth rate. This is encouraging because it shows Semrush was more successful in expanding than most software companies.
This quarter, Semrush’s year-on-year revenue growth of 23.7% was excellent, and its $97.41 million of revenue was in line with Wall Street’s estimates. Management is currently guiding for a 21.5% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 20% over the next 12 months, a deceleration versus the last three years. Still, this projection is admirable and shows the market is factoring in success for its products and services.
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Customer Retention
One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.
Semrush’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 107% in Q3. This means that even if Semrush didn’t win any new customers over the last 12 months, it would’ve grown its revenue by 7%.
Semrush has a decent net retention rate, showing us that its customers not only tend to stick around but also get increasing value from its software over time.
Key Takeaways from Semrush’s Q3 Results
We struggled to find many strong positives in these results. Its customer growth slowed and its gross margin decreased. Overall, this was a softer quarter. The stock traded down 6% to $13.49 immediately following the results.
Semrush didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
