What happened
Shares of Semrush Holdings (SEMR 0.33%) were getting hammered Tuesday after the online marketing software company reported its first-quarter results. As of 1:54 p.m. ET, Semrush stock was down 12.1%.
So what
In Q1, Semrush generated revenue of $70.9 million, an increase of 24% compared to the same quarter of last year. That was slightly ahead of management's $70.3 million to $70.7 million guidance range. And it slightly exceeded analysts' consensus expectation as well.
Given those results, one can only attribute the session's price drop to management's guidance, though I believe there's reason for a little more optimism.
Now what
Semrush is guiding for 21% revenue growth in 2023. But it's only guiding for 19% year-over-year revenue growth in the second quarter. Because it is a subscription business, most of its revenue is recurring, and it continues to climb, which is good. However, its growth rate has steadily slowed since Semrush went public in 2021.
SEMR Revenue (Quarterly YoY Growth) data by YCharts.
Notably, Semrush ended the first quarter with just over 100,000 paying customers, but that was only a 15% year-over-year rise. That its customer growth is slowing doesn't bode well for the company's future. That said, Semrush users generally begin their relationships with it by signing up for free accounts. And it ended Q1 with 885,000 free active customers, a figure that was up by a much more encouraging 36% year over year.
Moreover, Semrush has 51 apps available for its customers, but only about 20% of its customers use two or more. Therefore, the company can make progress both if free account holders upgrade to its paid service and if its paying customers adopt more of its products over time.
In conclusion, Semrush's growth is slowing, and that understandably has the market down on the stock. However, this business isn't in a tailspin -- it's still growing. And there are clear paths for its growth to reaccelerate if economic conditions improve and customers start increasing their online marketing spending.
