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Core Viewpoint - Goldman Sachs analyst Adam Hotchkiss initiated coverage on Similarweb Ltd (SMWB) with a Buy rating and a price target of $16, citing potential for sustainable mid-to-high teens growth and improving margins due to recent initiatives [1][2]. Financial Performance - Hotchkiss projected fourth-quarter revenue of $65.4 million and adjusted earnings per share of 5 cents [4]. - The price target implies approximately 29 times EV/FCF based on current estimates [3]. Valuation and Market Position - Similarweb's shares are currently trading at a multiple of 4.5 times, which is a discount compared to software peers growing at 10-20% annually, which trade at around 6.6 times [2]. - The 4.5 times multiple reflects a premium to Similarweb's three-year historical trading average, driven by recent revenue acceleration and improving profitability [3]. Market Reaction - Similarweb stock is up 6.86% at $13.02 as of the last check [5].

Group 1 - The company Similarweb (NYSE: SMWB) has been given a buy rating due to its strong competitive advantage over peers, which is attributed to its ability to source and synthesize data effectively [1] - The investment approach focuses on identifying undervalued companies with long-term growth potential, emphasizing the importance of buying quality companies at a discount to their intrinsic value [1]

Financial Data and Key Metrics Changes - Revenue growth accelerated to 18% year-over-year in Q3, with total revenue reaching $64.7 million [6][20] - Total customer count grew by 21% year-over-year, and net revenue retention (NRR) increased by 2 percentage points to 101% overall and 111% for customers with over $100,000 ARR [6][21] - Remaining performance obligations (RPO) totaled $212 million, up 27% year-over-year, with an expectation to recognize approximately 76% as revenue over the next 12 months [20] Business Line Data and Key Metrics Changes - Core product, Web Intelligence, continues to perform well, with increased demand in SEO capabilities following the acquisition of Rank Ranger [30] - Sales Intelligence tool showed strong demand, particularly with the introduction of AI-driven sales assistant features [31] - Advisory services also experienced high demand from large brands seeking sophisticated digital insights [31] Market Data and Key Metrics Changes - The company is witnessing a shift in customer behavior towards chatbots for information gathering, indicating a growing need for digital data insights [44] - Increased engagement with major tech companies for licensing digital data to train large language models (LLMs) reflects the evolving market landscape [36] Company Strategy and Development Direction - The company aims to capitalize on the AI revolution by integrating AI into its products and internal processes, enhancing efficiency and customer engagement [10][15] - A focus on expanding the sales force to capture new customer opportunities and improve upselling to existing clients is evident [52] - The strategic hiring of a new Chief Revenue Officer is expected to drive improvements in go-to-market strategies [8][55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, citing improved customer retention and the potential for further revenue growth [21][24] - The company is optimistic about the opportunities presented by the generative AI market and the increasing demand for its digital data solutions [10][18] Other Important Information - The company raised its revenue guidance for Q4 2024, expecting total revenue between $64.7 million and $65.7 million, reflecting a 15% year-over-year growth at the midpoint [23] - Non-GAAP operating profit for Q4 is expected to be between $1.5 million and $2.5 million, with a narrowed full-year guidance of $14 million to $15 million [24] Q&A Session Summary Question: What drove the stronger new customer growth? - Management attributed the growth to improved marketing efforts and increased brand awareness, alongside internal improvements [26] Question: Insights into revenue growth models for 2025? - Full guidance for 2025 will be provided at the beginning of the year, but current momentum is a positive indicator for future growth [27] Question: How has the product mix shifted? - The core product, Web Intelligence, and Sales Intelligence tools are seeing increased demand, particularly with AI capabilities [30][31] Question: Explanation of revenue volatility between Q3 and Q4? - Revenue fluctuations are attributed to the timing of bookings and revenue recognition processes [32][40] Question: What makes Similarweb data unique for LLM training? - The data is essential for providing up-to-date insights and trends, which are critical for training effective chatbots [36][38] Question: Expectations for net revenue retention trajectory? - Management is optimistic about retention rates improving, supported by multi-year contracts and successful upselling strategies [46] Question: Journey to large 8-figure deals? - Long-term relationships with clients have evolved into significant contracts, showcasing the trust built over years [49][50] Question: Focus areas for sales force expansion? - The company aims to enhance inbound demand capture and target enterprise clients for greater market penetration [52] Question: Performance of new head of sales? - The new Chief Revenue Officer is making significant contributions to the go-to-market strategy and overall sales performance [55]

Group 1 - Similarweb reported quarterly earnings of $0.01 per share, missing the Zacks Consensus Estimate of $0.04 per share, representing an earnings surprise of -75% [1] - The company posted revenues of $64.71 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 2.87%, compared to year-ago revenues of $54.83 million [2] - Similarweb shares have increased approximately 96.6% since the beginning of the year, outperforming the S&P 500's gain of 25.8% [3] Group 2 - The current consensus EPS estimate for the coming quarter is $0.04 on $65.03 million in revenues, and $0.18 on $247.38 million in revenues for the current fiscal year [7] - The Zacks Industry Rank for Internet - Content is currently in the top 35% of over 250 Zacks industries, indicating a favorable outlook for the industry [8]

Financial Performance - Total revenue for Q3 2024 was $64.7 million, an 18% increase from $54.8 million in Q3 2023[4] - Non-GAAP operating profit was $4.4 million, representing 7% of revenue, compared to $1.1 million or 2% of revenue in Q3 2023[4] - Free cash flow reached $8.7 million, a significant improvement from $(4.9) million in Q3 2023[6] - Revenue for the nine months ended September 30, 2023, was $161,264 thousand, an increase from $184,326 thousand in 2024, representing a growth of 14.5%[24] - Gross profit for the nine months ended September 30, 2023, was $126,033 thousand, compared to $144,843 thousand in 2024, indicating a gross margin of 78.2%[24] - Net loss for the nine months ended September 30, 2023, was $(25,965) thousand, improving to $(6,037) thousand in 2024, a reduction of 76.8%[24] - The company reported a non-GAAP gross profit of $130,325 thousand for the nine months ended September 30, 2023, increasing to $148,841 thousand in 2024, with a non-GAAP gross margin of 81%[32] - The company expects to achieve a non-GAAP operating income of $12,480,000 for the three months ended September 30, 2024, compared to a loss in the same period of 2023[33] Customer Growth - Customer base grew by 21% year-over-year to over 5,300 annual customers[2] - Dollar-based net retention rate (NRR) for customers with ARR of $100,000 or more was 111%, up from 108% in Q3 2023[6] - Customers with ARR of $100,000 or more contributed 60% of total ARR, up from 55% a year ago[6] Guidance and Projections - Q4 2024 revenue guidance is estimated between $64.7 million and $65.7 million, indicating approximately 15% growth year-over-year at the mid-point[10] - Full year 2024 revenue guidance is estimated between $249.0 million and $250.0 million[10] - The company anticipates continued growth in user data and market expansion, as indicated by the positive projections for free cash flow and operating income in 2024[37] Cash Flow and Liquidity - Cash and cash equivalents totaled $60.1 million as of September 30, 2024, down from $71.7 million at the end of 2023[6] - Cash flows from operating activities showed a net cash provided of $26,756 thousand for the three months ended September 30, 2024, compared to $(6,771) thousand in 2023[29] - Cash and cash equivalents at the end of the period were $67,412 thousand for the nine months ended September 30, 2023, decreasing to $60,131 thousand in 2024[29] Operating Expenses - Operating expenses for the nine months ended September 30, 2023, totaled $153,755 thousand, slightly decreasing to $150,947 thousand in 2024, reflecting a reduction of 1.2%[24] - Research and development expenses for the nine months ended September 30, 2023, were $42,452 thousand, slightly decreasing to $40,238 thousand in 2024, a decline of 5.2%[24] - The company incurred share-based compensation costs totaling $13,685 thousand for the nine months ended September 30, 2023, compared to $13,092 thousand in 2024[26] - The amortization of intangible assets related to business combinations was $3,605,000 for the nine months ended September 30, 2023, contributing to the overall operating expenses[33] Other Financial Metrics - The company achieved a free cash flow of $(8,936,000) for the nine months ended September 30, 2023, but projected a positive free cash flow of $24,765,000 for the same period in 2024[37] - Non-GAAP sales and marketing expenses for the nine months ended September 30, 2023, were $74,648,000, with a non-GAAP sales and marketing margin of 46%[34] - The GAAP general and administrative expenses for the nine months ended September 30, 2023, were $31,941,000, with a non-GAAP general and administrative margin of 17%[34] - For the nine months ended September 30, 2023, the company reported a GAAP loss from operations of $27,722,000, while the non-GAAP operating loss was $9,564,000, reflecting a non-GAAP operating margin of -6%[33]

Shares of Similarweb Ltd SMWB have climbed almost 77% year to date.The company's revenue growth is accelerating, "driven by returning demand and abating down sell activity," according to Needham.Analyst Scott Berg initiated coverage with a Buy rating and price target of $11.The Similarweb Thesis: Apart from revenue growth, the company's operating model is driving "rapidly improving profitability," Berg said in the initiation note.Check out other analyst stock ratings."We believe Similarweb is an early leade ...

Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or ...

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