Keeping a watchlist of stocks that you would be willing to buy on a market dip is always a smart decision, and these two stocks are great companies that you could add to that watchlist.
These two companies are risky, and it might be smart to wait to buy these stocks until they become derisked, but Semrush (SEMR 0.17%) and Matterport (MTTR +0.00%) are both fast-growing, intriguing companies that deserve a spot on your watchlist.
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Semrush: The unbiased leader
Semrush is a leader in the online visibility management market, helping business' ads stand out to their core audience. The average person is online 6.5 hours a day, so the consumer typically learns to block advertisements out of their attention. Semrush tries to help businesses reach those customers by breaking the information barrier and marketing effectively to those target customers.
While many visibility management companies focus solely on search engine optimization (SEO) or social media monitoring and analytics, Semrush does it all. Not only does it offer everything from short-term to long-term marketing, but it is a leader in 12 of the 15 marketing technology categories it operates in, so businesses know they are getting the best service on the market.
This has allowed the business to see tremendous financial success -- 58% revenue growth from second-quarter 2020 to Q2 2021 to $45 million, a net retention rate reaching 121%, and almost reaching breakeven profitability losing $279,000 in Q2 2021 -- representing 0.6% of revenue.
Semrush faces heavy competition from companies like Moz and Similarweb (SMWB 6.05%), but also Alphabet (GOOG 0.20%)(GOOGL 0.41%) and Facebook (FB +0.00%). The key difference between these companies, however, is that Moz and Similarweb focus on one part of a company's advertising strategy, whereas Semrush offers a broad range of options to its customers, and Alphabet and Facebook are biased -- incentivized to promote their own advertising channels. Semrush is the only company with a range of offerings and an unbiased nature in the market.
This competitive advantage and impressive growth are somewhat priced into the company -- which is trading at 23 times sales today. This is higher than Similarweb, which trades at 12 times sales. The stock is volatile, so while the valuation for Semrush is steep today, it has the potential to fall quickly during a market downturn.
For this reason, along with Semrush's market leadership, investors should watch this stock closely. While it might not be the best company to buy right now, it is definitely worth buying if the price were to fall slightly.
Matterport: Doing something completely different
Matterport is doing something very unique: It is trying to "digitize the built world" by building software to digitally map any home, office, or space. Putting a map of a space online allows Matterport and its customers to glean key insights that would go unnoticed without the online space -- or "digital twin" -- allowing customers to optimize and manage their space.
While this sounds like it came straight out of the future, it hasn't -- big-name customers are already using this technology, including Redfin (RDFN +0.00%), Airbnb (ABNB 0.19%), and Hyatt (H 0.28%).
The company operates in 150 different countries, managing over 5.5 million spaces with 404,000 software subscribers which have been growing fast. Software subscribers increased 158% while spaces under management grew 75%.
Q2 2021 revenue grew 10% from first-quarter 2021 to $30 million, and the company achieved a net expansion rate -- which excludes churn -- of 132%, meaning that all the customers today who were also customers one year ago are spending 32% more now than the previous year. The company lost $6 million in Q2 2021, representing 21% of revenue, and it isn't generating a free cash flow yet -- it still has a negative $6.2 million free cash flow.
The company has $42 million in cash to subsidize these losses, but it is key that it becomes free cash flow positive soon. Its free cash flow loss has been moving in the right direction -- moving from 31% of revenue in the first six months of 2020 to 21% in the first six months of 2021, but reaching profitability will be a long journey.
Its market opportunity is immense: If the company were to charge $1 per month per space, at 1% market penetration, it could reach annual recurring revenue of $2.4 billion -- which is 39 times larger than its current $61 million annual recurring revenue. Even though the company has expanded heavily and attracted some big customers, there is still plenty of room for Matterport to grow. While its path to profitability is in question, there is tons of growth potential for this company, which is why it would be smart to keep it on your radar.
