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SEMrush: Is This Broken IPO Compelling At Current Levels?

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SEMrush Holdings (SEMR), which creates tools for digital marketing, got off to a rough start with its IPO in late March. It’s true that the timing was awful as the markets were selling off.

As a result, SEMrush priced its offering at the low end of its range of $14 to $16. Yet this was not enough for investors. On the first day of trading, shares plunged by nearly 20%.

SEMrush stock has been able to recover some of the losses, though, and it is currently changing hands for $14.32 per share.

Then what now? Could this be an opportunity? It is encouraging that SEMrush was able to get its deal done in a harsh environment as a myriad of other companies were not so lucky.

What’s more, SEMrush has a strong foundation, with solid technologies. So, let’s take a closer look.

The SEMrush Platform

Back when the global economy was mired in the financial crisis of 2008, Oleg Shchegolev and Dmitry Melnikov set out to create their own startup. The focus was on building technologies to help companies get more visibility regarding their marketing and competitive environment.

A key part of the strategy was to create a massive database, which currently has over 200 million unique domains. With this, SEMrush has been able to provide its customers with rich insights on digital channels like search, social and digital media.

The service is affordable, with subscription plans starting at only $119.95 per month. This is certainly much more reasonable than retaining a marketing agency or hiring an in-house expert to put together the reports.

What about the competition for SEMrush – say from Alphabet (GOOGL) or Facebook (FB)? These companies do provide helpful reports, but they are about their own paid channels. For the most part, SEMrush is much more comprehensive.

Additionally, the market opportunity for the company is massive, so there is room for multiple players in the market. According to SEMrush’s own analysis, the category is worth up to $13 billion in the U.S., with the opportunity amounting to roughly the same outside of the U.S.

Bottom Line On SEMrush

Last year, SEMrush posted a 35.6% increase in revenues, with the figure landing at $124.9 million. The loss was also modest at $7 million (gross margin came in at 76%).

It should be noted that the company is highly capital efficiency. Since inception, it has raised only about $37 million. In other words, the company’s management has proven to be quite disciplined.

The capital efficiency also highlights the fact that it has a product which resonates with customers, and as such, there is no need to spend huge amounts on sales and marketing.

So far, the company has over 67,000 customers, up from 54,000 on a year-over-year basis. In addition, management has been adept when it comes to the monetization of the base as the dollar-based net revenue retention rate is at 114%. Moreover, the ARR per paying customer has been steadily increasing, going from $1,892 in December 31, 2019 to $2,123 as of December 31, 2020.

Of course, even with these strong fundamentals, Wall Street is still skeptical of growth plays right now and it’s not clear how long this will last. However, for investors with a longer-term approach, SEMrush does look interesting. (See SEMrush stock analysis on TipRanks)

Disclosure: On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.