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My Top Tech IPO to Buy in November

By Jamie Louko – Nov 4, 2021 at 9:22AM

Key Points

  • Semrush is reporting earnings on Nov. 10.
  • The company's offerings have been adopted by some of the biggest businesses in the world.
  • With earnings coming, it should report strong results thanks to its leadership position.

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This stock has the potential to explode after it reports earnings this month.

Since the start of the year, we have seen over 870 companies enter the market via an initial public offering (IPO). That figure, which excludes special purpose acquisition companies (SPACs), is up over 140% from the same period in 2020.

With so many companies going public right now, you might be experiencing analysis paralysis trying to wade through the endless information that comes with so many choices. To help you along in your analysis, here is one young stock that is worth buying this month.

Person leaning on a couch with a computer in their lap.

Image source: Getty Images.

Helping reach the target audience

The online visibility management tool Semrush (SEMR 6.82%) is looking to help companies reach their target audience and be visible to them through digital marketing. With more time being spent by consumers online, advertising has become a cluttered and competitive endeavor, making it hard for businesses to stand out and reach their target customers effectively. Semrush provides an all-in-one solution for businesses to manage their marketing decisions by acting on data and results from their various strategies. 

The company's platform has attracted brands like Tesla and Amazon, and when looking at Semrush's offerings, it's clear why. Its platform can bring to bear over 60 tools to help businesses overcome their online marketing challenges, ranging from short-term marketing strategies like paid advertisement to long-term initiatives like search engine optimization (SEO). This overarching portfolio has allowed the company to become a top choice for everything a business may need at any point in its marketing journey.

Semrush considers itself a leader in 12 of the 17 marketing tech categories it offers, so while competitors like Moz and Similarweb are competitive in specific niches, Semrush stands out with its presence across a broad spectrum of this industry. This has allowed the company to land customers and then convince them to expand their relationship with Semrush, resulting in a strong 121% net revenue retention rate in its second quarter.

Going into earnings

The company reported stellar second-quarter revenue and customer growth, as well as a nice improvement on its bottom line. Revenue was up 58% year over year and 13% sequentially to $45 million, while the number of customers increased 29% to over 76,000. Its net loss of approximately $0.3 million represented less than 1% of revenue, and on an adjusted basis, Semrush reported net income of $0.3 million.

And the company has guided for a strong showing in the latest quarter as well. With third-quarter results due on Nov. 10, Semrush is guiding for revenue of $47.5 million, which would represent about 47% year-over-year growth, and an adjusted net loss of $4.25 million. This bottom-line figure is a move in the wrong direction, but management is attributing this increase to greater investments in sales and marketing.

Semrush has beat analysts' estimates in both quarters it has reported results as a publicly-traded company, which is something I really like to see. A consistent habit of earnings outperformance is a good sign the company is executing at a high level.

What could hold it back?

The main risk to Semrush is that it faces plenty of competition from small niche providers, along with behemoths like Alphabet and Facebook. However, unlike those tech titans -- which are incentivized to promote advertising on their own platforms -- Semrush gives its customers an unbiased opinion about where they can most effectively reach their target market.

Compared to smaller, niche platforms, Semrush has a clear advantage because of its broad offering. Many enterprises want an all-in-one platform where they can go for all of their marketing needs, and Semrush is the only one in its industry that effectively provides that. For this reason, the company's expensive valuation of 19 times sales is justifiable to me.

And Semrush still has immense long-term potential. The company estimates its total addressable market will be worth $20 billion in the future, leaving plenty of room for it to expand. Putting my money where my mouth is, I plan on starting a position in this company in the near future.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jamie Louko owns shares of Amazon and Tesla. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Tesla. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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