SEMrush Holdings, Inc. (SEMR)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 delivered 20% YoY revenue growth to $108.9M, but GAAP profitability deteriorated (operating margin -4.0%, GAAP diluted EPS -$0.04) amid deliberate pullback in lower-end customer acquisition and FX headwinds; non-GAAP operating margin was 11.0% .
• Full-year revenue guidance was lowered to $443.0–$446.0M from $448.0–$453.0M, while non-GAAP operating margin and FCF margin were maintained at ~12%; Q3 revenue guided to $111.1–$112.1M and non-GAAP operating margin ~11.5% .
• Enterprise and AI product momentum accelerated: Enterprise SEO now largest contributor to growth; Enterprise AI Optimization (AIO) launched with ~30 customers and nearly $1M ARR; combined enterprise/AI ARR reached nearly $25M by Q2 with expectations to approach $50M by year-end .
• Strategic $150M share repurchase authorization announced, signaling management conviction and a potential stock support catalyst despite near-term revenue headwinds from low-end demand softness and rising paid-search CPCs .

What Went Well and What Went Wrong

• What Went Well

  • Accelerated enterprise/AI traction: “Enterprise SEO... became the single largest contributor to our revenue and ARR growth,” with enterprise SEO at 260 customers and avg ARR ~$60k; Enterprise AIO added ~30 customers with nearly $1M ARR in weeks .
  • Rising monetization quality: Average ARR per paying customer rose >15% YoY to $3,756, supported by cross-sell and higher-value cohorts .
  • Strategic capital return: Board authorized $150M share repurchase program, highlighting confidence in long-term growth and cash flow generation .

• What Went Wrong

  • Low-end softness and CAC inflation: Freelancers and less sophisticated users faced persistent pressures; paid search CPC “dramatically” increased, hurting unit economics; management chose not to chase volume at lower returns .
  • FX headwinds compressed margins: ~30% of expenses in EUR; USD weakness added ~$9M expense headwind vs initial plan, masking underlying operating leverage .
  • Near-term FCF volatility: Q2 free cash flow was -$3.6M (margin -3.3%) due to timing of cash taxes, collections, and prepaids; management reiterated full-year ~12% FCF margin target .

Financial Results

Estimates Comparison (Q2 2025):

KPIs and Operational Metrics:

Non-GAAP Adjustments Snapshot (select items):

Guidance Changes

Management cited lower-end demand softness and significantly higher paid-search CPCs driving the FY revenue cut, while maintaining profitability metrics; FX headwinds (EUR expenses vs USD revenues) were a notable margin drag .

Earnings Call Themes & Trends

Management Commentary

• CEO: “Enterprise SEO... became the single largest contributor to our revenue and ARR growth... our enterprise SEO solution grew to 260 customers with an average ARR of approximately $60,000” .
• CEO on AI: “AI Toolkit... is the fastest growing product in the company's history... we expect ARR from these products to approach $50,000,000 by the end of the year” .
• CFO on margins/FX: “Our non-GAAP operating margin guidance now absorbs an incremental expense headwind of about $9,000,000 resulting from recent exchange rate movements... Approximately 30% of our expenses are denominated in euros” .
• CFO on capital return: “We are announcing a $150,000,000 share repurchase program... demonstrating our strong belief in the business and the attractive valuation opportunity” .

Q&A Highlights

• Low-end pressures are contained to freelancers/less sophisticated cohorts; paid CPC increases worsened Q2 unit economics. Management opted to reallocate spend to enterprise/AI rather than chase low-ROI volume .
• FY revenue trajectory assumes enterprise/AI momentum (combined ARR near $25M at Q2, targeting ~$50M by YE); Street’s FY26 ~19% growth expectations may need calibration vs Q4 exit rate—management emphasized enterprise/AI ramp as offset .
• CAC efficiency pressure is concentrated at the very low end; economics remain more favorable for SMB/mid-market and enterprise, supporting continued organic and paid acquisition in those segments .
• Macro/tariffs/supply chain: No broad macro weakness detected outside low-end cohort; geographic mix remains ~50/50 U.S./RoW .
• Competition: No material change observed despite shift toward AI-based search .

Estimates Context

• Q2 2025 actual revenue slightly above consensus ($108.892M vs $108.812M*) and Primary EPS below consensus ($0.0656* actual vs $0.08* estimate); EBITDA materially below consensus (-$2.133M* vs $14.673M*) .
• Forward estimates imply Q3 2025 consensus revenue ~$111.647M* and Primary EPS ~$0.0767*; management guided Q3 revenue $111.1–$112.1M and non-GAAP operating margin ~11.5% .
• With FY revenue guidance lowered to $443.0–$446.0M (midpoint ~18% YoY), Street may trim FY25/FY26 topline and EBITDA expectations; margin expectations likely hold near ~12% non-GAAP with FX as key variable .
  Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

• Mix upgrade continues: Enterprise and AI are driving higher ARPU and better retention; focus away from lower-end cohorts should improve quality of growth despite near-term topline moderation .
• Expect FX sensitivity: With ~30% EUR-denominated expenses and USD revenues, FX is a significant margin swing factor; absent FX, margins would show underlying leverage .
• Watch Q3 execution: Guide implies ~15% YoY growth with ~11.5% non-GAAP OM; monitor enterprise/AI ARR ramp toward ~$50M to support reacceleration by Q4 .
• Cash flow seasonality: Q2 FCF dip was timing-related; company reiterates ~12% FY FCF margin—evaluate on full-year basis .
• Capital return catalyst: $150M buyback could support shares and signal confidence; track program pacing and impact on share count/liquidity .
• Competitive/geo stable: No notable competitive shifts; 50/50 U.S./RoW mix steady—execution remains the primary driver .
• Risks: Prolonged paid-search CPC inflation and persistent low-end softness could cap near-term growth; FX volatility could pressure reported margins .