Semrush Holdings: Stay Hold Rated As I Monitor For The Next Few Quarters

Investment Overview - Semrush Holdings (NYSE: SEMR) reported strong 2Q24 results, with total revenue of $91 million, slightly above consensus estimates of $89.7 million, and a year-over-year growth of 21.8% [3][4] - The company maintains a hold rating due to the near-term upside being largely priced in, despite positive growth indicators [2][44] Financial Performance - Adjusted gross margin expanded by 60 basis points year-over-year, contributing to adjusted EBIT growth from 3.1% in 2Q23 to 13.4% in 2Q24 [3] - Annual recurring revenue (ARR) grew by 23% in 2Q24, with a notable organic growth acceleration of 200 basis points from 1Q24 [3][4] Customer Growth and Strategy - The number of net new paying customers increased by 12% year-over-year, indicating a strong up-sell and cross-sell potential, with average revenue per paying customer (ARPC) growing by approximately 12% [4][37] - The company is optimistic about future growth from its Enterprise GO product, with a 37% increase in customers with over $10k ARR, marking the third consecutive quarter of acceleration [39] Acquisition Impact - The acquisitions of Brand24 and Ryte are expected to enhance SEMR's capabilities, particularly in social media, brand marketing, and technical SEO, potentially driving significant ARPC uplift in the long term [37][38] - However, the benefits from these acquisitions are not expected to materialize in the near term as cross-selling efforts are still in the early stages [41][43] Valuation Metrics - The forward revenue multiple is currently at 4.0, with a target share price of $13.90, indicating limited near-term upside based on current growth expectations [40][41] - The market is likely to reassess SEMR's valuation as growth accelerates in the medium term, potentially allowing for a higher multiple [42][44]