SEMrush (SEMR 0.76%) hasn't even been publicly traded for a full year yet, but already it's caught the attention of investors looking to capitalize on the lucrative and historically high-growth world of software-as-a-service (SaaS) companies. In this segment of Backstage Pass, recorded on Jan. 10, Fool.com contributor Jamie Louko digs into the company's business model and the key points that investors need to know before taking the leap on the recent initial public offering (IPO) stock.
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Jamie Louko: Up until about six months ago, I'd never heard of it either. This was one company that I have never heard about until Brian Feroldi and Brian Stoffel talked about it and they really liked it.
I'm like, OK, I might as well give it a look. It is a super interesting company and one that I own shares of myself. What it is, it's a leading marketing technology platform. We have these fintech, everything tech, insurtech. I'm adding another one. We're going to go with martech here.
That stands for marketing technology. What SEMrush does is it provides an all-in-one solution for marketing strategies of all types, whether it's search engine optimization, or social media, or any other marketing strategy that a company wants to take.
SEMrush offers tools to not only research and monitor different marketing strategies for the business but also watch them after they use them to figure out which ones most effectively reach companies' target audience.
This has attracted really big name customers. Jaw-dropping customers like Apple, Walmart, and Tesla. I'm sure if you guys haven't heard SEMrush, you've heard of those three companies. They have tons of customers. They have over 79,000 customers which grew 23% year-over-year.
One company that it really reminds me of is Datadog. Datadog has dozens of tools for observability of infrastructure for businesses. In SEMrush, I see it as a something that's very similar to Datadog only for the marketing side of business.
It offers 50 marketing technology tools and what's really interesting is it is a market leader in 19 of those tools, meaning it has the best tool in 19 of those 50 tools that it offers.
Really, what I like about SEMrush is that it's an all-in-one solution and that's really unheard of in this marketing technology space. There are a lot of companies like Similarweb, Similarweb is a really good competitor for SEMrush.
But Similarweb is a market leader in two, three maybe four of these marketing strategies and tools. But no other competitor comes close to the all-in-one solution with having an all encompassing solution that SEMrush has. This has resulted in a lot of success for the business.
In Q3 alone, they had $49 million in revenue and that grew 53% year-over-year. As you can see over here, SEMrush has been one of the few companies that have crushed the market since it came public in late March of last year. Another really surprising thing, you don't see profitable companies with IPOs nowadays. But these companies just about break even.
In the first nine months of 2021, they had $579,000 in net income and $18 million in free cash flow. The profitability on this company is really surprising and it's mostly because they are such a leader in the industry with such high switching costs. It allows them to not have to spend that much in marketing for their own business.
Just like Datadog, once you get that one customer that joins for one marketing strategy, it's really easy for SEMrush to expand the relationship and get them to take on multiple tools and really expand that relationship with them.
One risk that I saw before investing in the company was, they could be facing competition from Google and Facebook or Meta in terms of marketing on those two platforms, because those two platforms are really strong and really popular. But the one thing that SEMrush has over those players is their neutralities.
SEMrush doesn't care where an advertiser markets. They really only care about what is most efficient for that marketer and therefore, they're willing to offer a lot of places where it might be most efficient to reach their target audience.
Instead of, "Oh, I'm Google. I want you to advertise on Google, so I'm going to tell you to advertise on Google and market on Google." SEMrush really provides that unbiased view that some of those bigger companies can't replicate.
