Following my previous post https://discussion.fool.com/this-is-what-i-did-about-upst-349758… on how I trimmed UPST significantly and added to my SEMR position, I wanted to go into details on the following:
- Is the dollar based net revenue retention good?
- Does the iOS update affect Semrush?
- If they already serve 25% of the Fortune 500 companies, then what is the upside and is the TAM growing?
- Why I own Semrush
- What would make me sell
- Are Q3 results good?
- How it compares with other digital optimization tools
Is the dollar based net revenue retention good?
It went from 119% and 121% in previous Qs to 124% now. The significance of this is that Semrush operates with mostly SMBs where the churn is much higher than let’s say bigger customers. I wanted to make sure that this number included churn in case I missed something, so I email IR and they indeed confirmed that. Here’s the reply I got: https://imgur.com/a/pPW78tx
Does the iOS update affect Semrush?
My understanding is that Semrush is not an ad company. On the contrary, I believe this apple update will force businesses into investing more into their content and essentially make martech solutions like Semrush even more necessary.
As I wanted to confirm that, I email IR once again and they confirmed my thoughts. Here’s the reply I got: https://imgur.com/a/d901R2O
This was also mentioned in the earnings call that their customers are expressing that they will invest more in their organic content growth as per my initial thought.
If they already serve 25% of the Fortune 500 companies, then what is the upside and is the TAM growing?
I was wondering how I should think about Semrush customers in order to evaluate their TAM. Are they after the big players or focusing on SMBs mostly? I send an email to IR, and this is the reply I got: https://imgur.com/a/wXKlizl
Why I own Semrush
As I was aware of the software, been using it for a few years now, and the company might have started here in Cyprus (hence the CY entity owned by the CEO) and still operates a much bigger office now, I was somewhat accustomed to the company so once they went public I went through the numbers, liked it for the price and the somewhat decent growth (50%), decent margins, zero debt, good operating leverage, so I bought a starter position at around $12 (it IPOed at $14 but dropped almost immediately). I mentioned it before that as long as they grow at around 50%, I’ll keep them in my portfolio. I don’t expect them to start growing at 100%. Not even 60% probably.
It is not a popular stock but slowly slowly it started gaining some followers on stocktwits https://stocktwits.com/symbol/SEMR . I understand that a lot of investors are skeptic of the Russian origin hence the discount probably. I didn’t buy it for the discount because it might stay that way forever. Who knows? But for the price, growth and long-term potential, I like the company.
What would make me sell
I never sell on allocation alone. Meaning if it gets too big, I simply won’t trim unless I want to add to other positions. I think about allocations as giving more responsibilities to a high-performance employee. I might start with a starter position and then promote that employee to a higher role. If they can do their job then why fire them, right?
As mentioned above, I’ll sell the minute they decelerate significantly. Up until now, they keep beating estimates and raising guidance. They are always prudent with their numbers but keep on executing well.
Are Q3 results good?
In a word, yes. https://investors.semrush.com/news/news-details/2021/Semrush… the metrics are either staying relatively the same or are improving. Here are the most important ones.
Revenues in $m
28.4 32.1 36.4 40 45 49.3 (above management’s expectation as in previous Q)
13% 13% 10% 12% 9.5%
72K 76K 79K
10K customers up 75% YoY (very decent growth here)
Total customers up 23% YoY
ARR $199 million up 47% YoY
Non-GAAP net income of $12 thousand from negative $780 thousand a year ago (good operating leverage here)
How it compares with other digital optimization tools
Digital optimization tools like Sprout Social and Amplitude are all needed going forward. The push to digital-first companies means that digital tools are/will be at the very core of many businesses.
I choose SEMR only to go into my portfolio because it grows faster than Sprout Social, it brings in more $ than Amplitute with better operating metrics than both of them. And even though I don’t get excited because of its cheaper valuation, I feel like there is a better margin of safety compared to the other two. Just my 2 cents.
Some links to my previous posts on Semrush: