An unknown growth stock: Get it while it’s cheap
Jamie Louko (Semrush): Two services that marketing teams can’t live without are solutions that provide data to drive marketing decisions and tools that can enable effective marketing. After all, this data drives nearly all of the strategic decisions made, and these tools make it simple to put these strategies into action. Over 94,000 customers rely on Semrush for these tools and data. Since it has unique, first-party data on over 20 billion keywords and 200 million website domains (plus a lot more), Semrush could be deemed a mission-critical platform for marketing teams within organizations.
This might be why the company has seen such robust results in 2022, despite the worsening macroeconomic environment. Revenue in the third quarter jumped 34% year over year to $66 million, and unlike other software companies, it predicts steady demand through the end of 2022. Full-year revenue is forecasted to increase roughly 35% year over year to $253 million.
The company isn’t completely immune to this macro downturn, but it’s showing resiliency compared to other software services. Customers have slowed their additional spending on Semrush as the macro picture has worsened, bringing its net retention rate to 122% in Q3 -- down from 125% in Q2. However, given the criticality of the company’s services, churn has remained stable compared to Q2.
Larger customers, which are traditionally less sensitive to economic downturns than small businesses, presumably subsidized this stability. In Q3, Semrush saw customers spending $10,000 annually on its platform soar 70% compared to the year-ago period and 12% sequentially.
Shares now trade at a reasonable valuation of 6.2 times sales -- far below other tech stocks, which often trade above nine times sales. The market sell-off has created many deals, and Semrush is one of them. Therefore, you should consider grabbing a few shares before 2023 to hold for the long haul.
