Semrush Q1 Results Beat Expectations

• First quarter results show robust revenue growth beyond expectations.
• Customer numbers rose in spite of geopolitical challenges.
• Semrush plans to invest in brand marketing throughout the year to drive further customer growth.

 

Semrush SEMR announced its Q1 earnings results on Tuesday 10 May. The company describes itself as an “online visibility management SaaS platform”, and helps businesses with marketing via search engine optimisation (SEO), pay-per-click (PPC), content, social media and competitive research campaigns.

The results were promising for a company in this stage of its development. Revenue was up 43% year-on-year at $57.1 million, beating consensus by a healthy 3%. This may be largely attributable to a growing customer base, with paying customers up approximately 19% year-on-year, totalling over 87,000. Net customer adds were up by 5,000 in the first quarter, which is a big improvement on the existing level of customer growth post pandemic, and comfortably beat expectations of 3,200.

Net revenue retention was also up on the previous quarter, at 127%.

 

 

Total costs in this quarter grew by around 19% year-on-year, which may be related to the company’s investments in a brand marketing campaign.

Semrush expects to invest in more such campaigns throughout 2022, which will likely see a rise in costs in the short term, but may help it to gain recognition and land some larger clients.

Another upcoming cost is the one-time expense of relocating employees from Russia, which the company hopes to do by September 2022 as it winds down Russian operations.

Net income remains negative, at -$2.6 million for Q1 2022. Semrush has displayed solid evidence that its investments are paying off in the long run, however. Its Media Monitoring add-on, for example, was launched last quarter, and saw take rate jump by 20% in the first week of availability as a result of new Prowly customers.

The company is expecting revenue in the second quarter of this year to be around $60 million, which is a 33% increase year-on-year.

 

Market overview

SEO and digital marketing remain a priority for many companies, particularly in the wake of the COVID-19 pandemic, which has driven businesses and consumers online. Software as a Service (SaaS) is consequently an in-demand offering, and some companies have experienced explosive growth (multiple expansion in the realms of 50x). Analysts from Needham believe that Semrush's growth profile is in the top quartile of public SaaS vendors today, so the potential for sustained growth is particularly high. Semrush is often seen as predominantly targeting small and medium-sized enterprises, but expect to see revenue spike if it continues to gain traction among larger companies like Disney and Facebook.

 

Investment opportunity

Semrush’s investment proposition comes in two parts: its strong product offering and its potential scalability.

Semrush listed on the NYSE in March 2021, and has since been investing heavily in its offering. The result is a versatile platform which outstrips peers in ease of use and self-service capabilities. One key differentiator is Semrush Academy, which provides clients with online training resources across a wide range of content areas as well as certifications. This is similar to the training courses which have seen so much success on trading and crypto platforms. The idea is to drive more widespread (and efficient) usage of the platform and assist upskilling across client organisations. Another standout function is Semrush’s efficient go-to-market (GTM) engine.

Analysts stressed Semrush’s ability to scale upmarket with large customers. This scalability is equally applicable on a global level, because of the platform’s multilingual capabilities. With offices across Europe, Asia, and North America, the company is in good stead to profit from the global surge in digital marketing.

 

*Semrush investor presentation 2022

 

Key risk factor

The scope of the current tech sell-off is unprecedented, and could well continue to impact Semrush’s shares. On the other hand, there is a compelling case for buying the dip as a possible over-correction provides an attractive buy-in price for a range of tech securities.

Rising interest rates could also be a headwind for high-growth software like Semrush. The company’s strong fundamentals and its guidance for the second quarter (with revenue expected to be in the range of $59.5 million to $60.5 million, up by a third year-on-year) suggest that this does not pose a material risk in the short term at least.