What Happened:
Shares of marketing analytics software Semrush (NYSE:SEMR) fell 21.1% in the morning session after the company reported fourth-quarter results with its total number of customers and net revenue retention rate falling short of expectations. Furthermore, its revenue guidance for the next quarter and the full year 2024 missed analysts' forecasts.
On the other hand, revenue exceeded expectations during the quarter. In addition, its projected free cash flow margin for 2024 was better than expected. In the first half of 2024, it expects its new Enterprise Platform to be available to all customers. According to the company, "it has been in a soft launch state since late October 2023 and is currently being used by a select number of large-scale business customers". Overall, this was a mediocre quarter for SEMrush.
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What is the market telling us:
SEMrush's shares are quite volatile and over the last year have had 19 moves greater than 5%. But moves this big are very rare even for SEMrush and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 8 months ago, when the company dropped 5.2% on the news that analyst Adam Hotchkiss of Goldman Sachs initiated coverage on the stock with a Neutral rating and a price target of $10.5. Hotchkiss cautioned that Semrush faces an "existential risk" from bigger competitors who could challenge its data advantage.
On the other hand, the analyst highlighted Semrush's ability to collect and use large data sets and tools to help businesses manage their online presence, especially in the small and medium-sized markets. He added that the potential demand for Semrush's software from the emerging technologies like generative AI (artificial intelligence) could be large.
SEMrush is down 20.8% since the beginning of the year, and at $10.45 per share it is trading 25.6% below its 52-week high of $14.05 from December 2023. Investors who bought $1,000 worth of SEMrush's shares at the IPO in March 2021 would now be looking at an investment worth $930.48.
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