SEMR Q2 Deep Dive: Enterprise and AI Offset Downmarket Softness, Guidance Cut

August 12, 2025 at 22:56 PM EDT

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Marketing analytics software Semrush (NYSE: SEMR) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 19.7% year on year to $108.9 million. On the other hand, next quarter’s revenue guidance of $111.6 million was less impressive, coming in 2.9% below analysts’ estimates. Its non-GAAP profit of $0.07 per share was 17.9% below analysts’ consensus estimates.

Is now the time to buy SEMR? Find out in our full research report (it’s free).

Semrush (SEMR) Q2 CY2025 Highlights:

Revenue: $108.9 million vs analyst estimates of $108.8 million (19.7% year-on-year growth, in line)
Adjusted EPS: $0.07 vs analyst expectations of $0.08 (17.9% miss)
Adjusted Operating Income: $11.96 million vs analyst estimates of $12.01 million (11% margin, in line)
The company dropped its revenue guidance for the full year to $444.5 million at the midpoint from $450.5 million, a 1.3% decrease
Operating Margin: -4%, down from 3.7% in the same quarter last year
Customers: 116,000, down from 118,000 in the previous quarter
Net Revenue Retention Rate: 105%, down from 106% in the previous quarter
Annual Recurring Revenue: $435.3 million vs analyst estimates of $439.3 million (15.3% year-on-year growth, 0.9% miss)
Billings: $110.7 million at quarter end, up 18.4% year on year
Market Capitalization: $1.10 billion

StockStory’s Take

Semrush’s second quarter was met with a sharply negative market response as investors digested mixed signals from its business segments. Management cited persistent weakness in the lower end of its customer base, particularly among freelancers and less sophisticated users, as a key factor, with CEO William Wagner highlighting, “This customer segment includes freelancers and less sophisticated users who have historically had the highest churn rate of our customer cohorts.” The company’s shift in resource allocation away from these lower-value segments, prompted by rising paid search costs and declining unit economics, further shaped quarterly performance.

Looking ahead, Semrush’s updated guidance and business strategy hinge on accelerating investments in enterprise and AI products while maintaining disciplined spending. CFO Brian Mulroy emphasized, “Our enterprise and AI products continue to show remarkable strength, adoption and momentum, exceeding our early expectations.” Management is prioritizing resource reallocation toward high-growth, high-retention areas, though executives cautioned that near-term revenue headwinds could persist as the company transitions away from lower-value segments. The outlook is driven by expectations of continued enterprise adoption and rapid expansion of AI-enabled offerings.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to a deliberate shift in focus toward enterprise and AI segments, offsetting ongoing softness in lower-value customer cohorts and rising marketing costs.

Enterprise segment drives growth: Semrush’s enterprise SEO solution became the leading contributor to revenue and annual recurring revenue growth, reflecting strong uptake among larger organizations seeking advanced search engine optimization tools.
AI product momentum: The company’s AI toolkit, launched at the end of Q1, rapidly became its fastest-growing product, and the new enterprise AI optimization offering secured over 30 customers in a few weeks, reinforcing the demand for AI-powered search solutions.
Strategic marketing pullback: Management intentionally reduced marketing spend targeting freelancers and less sophisticated customers due to rising paid search costs and weaker retention, reallocating resources to enterprise and AI where returns are stronger.
Customer mix shift: The average annual recurring revenue per customer increased 15% year over year as Semrush focused on acquiring and upselling to higher-value, more sophisticated customers, despite a sequential decline in total customers.
Share repurchase announcement: The company introduced a $150 million share buyback program, reflecting management’s belief in the long-term opportunity and robust balance sheet, though liquidity considerations remain under discussion with institutional shareholders.

Drivers of Future Performance

Management expects further growth to be driven by enterprise and AI product adoption, while challenges in lower-value segments and cost pressures remain key headwinds.

Enterprise and AI expansion: Semrush aims to double annual recurring revenue from enterprise SEO, enterprise AI optimization, and AI toolkits by year-end, with management citing strong momentum and a large pipeline of both new and existing enterprise customers.
Continued downmarket headwinds: Executives anticipate ongoing churn and weakness among freelancers and less sophisticated users, driven by post-pandemic shifts and elevated customer acquisition costs, but believe these pressures are temporary and largely contained to this cohort.
Foreign exchange and cost discipline: Management reiterated a focus on maintaining non-GAAP operating and free cash flow margins despite currency headwinds, planning to fund investments in high-growth areas through internal resource reallocation rather than expanding overall costs.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be closely monitoring (1) the pace at which enterprise and AI products approach targeted annual recurring revenue milestones, (2) stabilization or further declines in the lower-value customer base, and (3) management’s ability to maintain margin discipline despite ongoing currency headwinds and shifting customer mix. The effectiveness of new AI product rollouts and customer retention within the enterprise segment will also be essential signposts.

Semrush currently trades at $7.44, down from $9.25 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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