From the marketing software platform Semrush (SEMR 0.35%) went public in early 2021, shares are in the green, but it’s been a volatile ride. The stock is down more than 54% from its all-time high.
This dip, however, seems like a good time to pick up some stocks on the cheap. Semrush is a leader in the marketing technology industry, and is gaining more traction in the quarter. If you have the money to invest, Semrush has the potential to dominate this space.
Semrush’s Russian Headwinds
Semrush’s marketing technology tools have attracted over 91,000 paying customers as they help businesses reach their target audience. It has dozens of services that range from short-term promotional tools to others that help build long-term brand visibility and awareness. What makes Semrush unique is its broad domain. While most rivals in this space focus on one or two product categories such as search engine optimization, Semrush claims to have leading products in 19 different marketing technology categories.
One of Semrush’s main concerns recently was its presence in Russia. The company had most of its employees living there earlier this year, which posed a significant risk due to the growing political tension between the US and Russia. When Russia launched its invasion of Ukraine in February, that risk turned into a crisis.
As a result, Semrush management announced that it planned to relocate all of its Russian employees to other parts of Europe during the first quarter. Although this was a costly decision, it would alleviate geopolitical risk for the company and put its employees in a safer position. Almost all of its Russian employees have since relocated, and the company no longer operates in the country.
However, this significantly affected profitability. Semrush racked up a net loss of $8.3 million in the second quarter, a big jump from the $279,000 loss it posted in the year-ago period. The company also expects these higher expenses to continue for the rest of the year, as it expects a net loss of $28 million to $32 million for the full year, about $10.5 million of the which come from relocation costs.
Moving forward
Apart from progress in exiting Russia, Semrush’s second quarter was highlighted by stable demand despite the challenging macroeconomic environment. A slight softening of business is being seen in Europe, but other major geographies continue to perform well. That helped second-quarter revenue jump 39% year-over-year to $62.6 million. Management expects 30% year-over-year revenue growth in the third quarter, a bullish sign in this period of uncertainty.
A big driver of the quarter’s success was Semrush’s big customers. The number of customers spending more than $10,000 annually increased 80% year over year, and the number of customers purchasing the company’s higher-priced software subscriptions increased 25% during the same period. This shows that Semrush is still seeing robust adoption, a testament to the usefulness of its services.
This is also evident in the company’s dollar-based net income retention rate of 125%, which was relatively flat from 127% in the first quarter.
Now seems like a good time to buy
Despite the challenges it faces right now, Semrush is running and expanding at a solid pace. The stock is being dragged down by its broad losses, but the bottom line should improve as the company cuts its one-time relocation spending.
Add in the company’s economic resilience this quarter (which should continue through the rest of the year with top-line growth of 34% to 35%) and investors have a dominant business leading a space that could be worth $20 billion of dollars in the future, according to the company’s estimates. The cherry on top is the current rating. Trading at 8.9x trailing 12-month sales, this multiple is trending upward, but is still well below last year’s peak levels.
The recent market selloff has created many attractive deals in the tech space, and Semrush is one of them.
Jamie Louko has positions in SEMrush Holdings, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
[ad_2]
Source link
