Chances are you've never heard of Semrush (SEMR 3.48%) in your day to day, but you've likely been impacted by it in some form or another. If you've seen an advertisement on social media or a promoted website at the top of your Google search, this ad was likely placed with the help of Semrush.
The company is the leading marketing technology platform, helping users analyze data and decide where they can reach their target audience best. The company has an all-in-one offering that provides services for everything from short-term advertising to long-term brand building. After its strong fourth quarter where it posted impressive growth, you might want to consider adding this software-as-a-service stock to your portfolio.
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1. It keeps on growing
Semrush has found dominance in a lucrative market, one that is currently worth $13 billion globally and should grow to $20 billion in the future. The company has 82,000 customers and over 50 tools, making it one of the biggest platforms in the industry with everything a marketer may need. It faces pressure from smaller competitors, but those players typically focus on only a few segments, while Semrush is a leader in 19 marketing categories, including search engine optimization (SEO), content analytics, and competitive intelligence.
The company has been an industry leader in 12 marketing categories for seven straight quarters, which has allowed it to grow rapidly. Fourth-quarter revenue jumped 47% year over year to $54 million as the company's net retention rate rose to 126%. This means customers from the year-ago quarter have increased their spending with Semrush 26% on average as of the latest report. Customers are increasing their usage of Semrush's tools and relying on its products more for competitive data, performance monitoring, and standing out to their target audiences.
What's especially appealing is the stock's valuation. The company has grown revenue at a 50% compound annual rate over the past five years, yet it's valued below eight times sales, the lowest multiple since the company went public last year. Management expects this growth will slow to about 30% this year, but Semrush is tapping into a significant market with plenty of room for continued expansion.
2. Expanding its reach
To sustain its growth going forward, Semrush has been widening its offering to make its platform even more valuable. In the fourth quarter, the company launched a keyword intent filter, which helps customers make the most out of their marketing campaigns by optimizing keyword targeting. Small things like these might not sound glamorous, but this continuous innovation ensures that Semrush's platform is always the best it can be.
The company also highlighted the success of Prowly, its press release business. This helps companies stand out from the crowd with their press releases and build important media contacts to make sure their marketing efforts are being seen. This segment saw impressive growth in the latest quarter: It had over 1,000 customers and annual recurring revenue growth of 100%.
3. Investing in the future
The company is also ramping up its growth efforts by investing heavily in employees. Last quarter, sales and marketing spending jumped nearly 25% sequentially because of the company's efforts to increase its sales team headcount and its marketing investments. This spending will continue through 2022: The company's non-GAAP net loss for the year is expected to reach about $22 million, up from last year's net loss of $0.5 million.
While the bottom line is trending in the wrong direction, the company wants to ramp up its growth. Semrush already has customers in 143 different countries, but it likely wants to increase its penetration rates in those regions. And the latest net loss guidance still represents just 9% of the revenue outlook for 2022. Additionally, the company's free cash flow in 2021 was $20 million, and it has $270 million in cash on the balance sheet to fund its growth efforts.
The recipe for success
Semrush has a lot going right for it currently. The company is growing rapidly, yet it continues to innovate and roll out new features to increase its value for customers. The company's losses are expected to rise, but long-term investors should see this as a focus on propelling the business forward over the coming years. At the lowest valuation it has ever had, this company is too good to pass up, which is why shares are worth buying today and holding for the next decade.
