If you like to invest in software-as-a-service (SaaS) stocks, there's certainly no shortage of options to consider. From major software giants to recent IPOs, this space is buzzing with opportunity for long-term investors. In this segment of Backstage Pass, recorded on Jan. 10, Fool.com contributors Jamie Louko and Danny Vena discuss a lesser known player in the world of SaaS stocks called SEMrush (NYSE: SEMR) and the potential risks investors should be aware of before scooping up shares of the promising company.
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Jamie Louko: But as much as I really like this company. There are a bunch of things that worry me. This is an older company. It was founded in 2009, but it's still small. It's just over two billion dollar market cap and with 50 million in revenue. It's not huge, but it's not super big and so that does worry me. They're not rapidly growing as some other really successful companies like Trade Desk, Square [now called Block]. Those two companies come to mind. Square, I think was actually founded just a year after SEMrush and yet it's a much bigger company. I do worry about that. It is pretty old, but it's not massive yet.
On the other, major risk I see is potential geopolitical risk. This company, from everything that I've found, was founded in Russia and most of its management team is Russian. But they have HQ in Boston.
It doesn't worry me personally but with having connections to Russia and having a lot of their developers living in Russia and working in Russia, that does definitely provide something that investors should consider before they invest, making sure that they're OK with taking on some geopolitical risk if anything doesn't go right with the U.S. and Russia.
Then one other thing that I put in here that personally, I'm not concerned about but cookies. Companies like Apple and Alphabet have been talking about getting rid of cookies and that could potentially hurt SEMrush when it comes to marketing.
In advertising, you're looking for personal information to reach your target audiences the best you can. Trade Desk, PubMatic, Magnite, they all use those to some extent. That could to some extent affect SEMrush.
But the reason I'm personally not worried about it is because there have been a lot of adtech companies like The Trade Desk and like PubMatic in specific, that have been developing cookieless servers and sites where you can reach your target audience without using cookies.
They've been developing those for a few years now and so I figured they can employ those services to some extent to avoid those cookies. But it does present something that you could worry about in the future, but that is SEMrush.
Danny Vena: Jamie, you mentioned The Trade Desk and so from a technological standpoint, what is different about SEMrush than from The Trade Desk? Trade Desk is a company that I follow quite closely and I understand what it is that they do.
They essentially help some of the world's leading ad agencies find this ad inventory for their clients and essentially uses AI, high-speed servers, sophisticated algorithms to make these real-time bidding on these ad spaces. What's different about SEMrush?
Jamie Louko: Yeah, that's one question that I struggled with for a long time when I first found this company. What I've come to think about it is SEMrush is a broader offering more than simply advertising and placing ads. They are more focused on marketing rather than advertising.
Marketing can include not necessarily advertising, but social media aspects to reach their target customers, or PR, or search engine optimization where you're not placing ads on specific sites, which is what The Trade Desk primarily does, but it's much more broad than that and it focuses on all of marketing instead of rather just advertising.