Q3 2024 Earnings Summary
- Strong traction of the new enterprise SEO product, with over 70 accounts migrated by the end of Q3 and exceeding 90 accounts by the end of October, indicating significant upsell potential within their 8,000 existing enterprise customers.
- High net revenue retention rates in key segments, with business and agency accounts achieving a net revenue retention above 120%, demonstrating strong customer loyalty and upsell opportunities.
- Successful monetization of AI capabilities, leading to increased customer interest in upgrading and spending more, through strategies like enhancing core plans with AI features, offering specialized SKUs, and standalone AI-powered products like ContentShake AI.
- The company's net revenue retention rate has remained flat at 107% for several quarters, with retention rates in the freelancer segment below 100%, potentially dragging down overall growth.
- The growth in average ARR per customer was more muted than previously, and upcoming tougher comparisons and prior pricing actions may limit future ARR per customer growth, despite early adoption of enterprise products.
- The adoption of the new enterprise SEO product is in early stages, and while the company is relying on it for future growth, there is uncertainty regarding the speed and scale of its adoption, particularly among agency customers where switching entirely to Semrush platform may take longer due to their diverse client needs.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +23.7% (from $78.72M to $97.41M) | Revenue growth was driven by continued increases in paying customers, higher user licenses, and strong attach rates across regions. This follows the growth drivers seen in earlier periods where underlying business factors such as an expanding customer base and enhanced revenue per customer laid the foundation for robust revenue performance. |
U.S. Revenue | +18.5% | The increase in U.S. revenue is attributed to customer base expansion and enhanced revenue per customer. Similar to previous periods, strong customer acquisition and stable attach rates supported growth, although the pace remains modest compared to overall revenue, suggesting slightly different market dynamics in the U.S. compared to other regions. |
U.K. Revenue | +17% | Growth in U.K. revenue resulted from an increased number of paying customers and improved add-on sales. This mirrors earlier Q2 trends where enhanced user licenses and higher attach rates boosted regional performance, reinforcing the sustainable nature of the revenue drivers applied consistently across regions. |
Other Regions Revenue | +31% | The highest growth rate in Other regions (31%) likely reflects accelerated market penetration and stronger attach rates. This dramatic increase, relative to previous periods, signals successful regional strategies and a greater expansion pace beyond traditional markets, underscoring a shift in geographic performance. |
Operating Income | -38% (declined from $2.748M to $1.705M) | Operating income declined significantly despite revenue gains due to rising operating expenses, particularly in sales, marketing, and R&D. Investments aimed at capturing further growth, along with cost pressures and possibly deferred benefits from previous periods, eroded margins compared to earlier Q3 performance. |
Net Income | -83% (fell from $4.215M to $0.718M) | Net income suffered a steep decline driven by margin compression, increased expenses, and potential one-time items. While previous periods showed strong profitability, the current period’s challenges in converting revenue growth into bottom-line gains highlight operational and cost management issues. |
Net Change in Cash | Shift from +$17.117M to -$36.261M | The net change in cash reversed dramatically due to significantly higher operating outflows and increased investments. This deterioration in cash performance, contrasting with positive cash flow in the previous year, indicates aggressive reinvestment in growth initiatives and a need for future focus on cash optimization. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | $96 million to $97 million | $100.8 million to $101.8 million | raised |
Non-GAAP Operating Margin | Q4 2024 | 11% | 11% | no change |
Revenue | FY 2024 | $373 million to $375 million | $375 million to $376 million | raised |
Non-GAAP Operating Margin | FY 2024 | 10.5% to 11.5% | 12% | raised |
Free Cash Flow Margin | FY 2024 | 8% | 8% | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Enterprise SEO Product Adoption | Consistently highlighted in Q4 2023, Q1 2024 and Q2 2024 for early adoption, significant upsell potential and strong client wins. Notable points included soft/GA launches, impressive ARPU multiples, deep enterprise engagement and positive ROI from migrations ( ) | In Q3 2024, strong traction is reaffirmed with over 90 enterprise accounts migrated and high-profile deals with major brands like Salesforce, HSBC, LG and TikTok. The narrative stresses robust demand with enterprise accounts as key growth drivers ( ) | Reinforced positive sentiment – The emphasis on enterprise adoption has remained strong and appears to be accelerating with further migration and major brand wins. |
AI Monetization & Integration | Across Q4 2023, Q1 2024 and Q2 2024, AI was discussed as a top monetization driver using multiples strategies: integrations in core products, drive for higher-tier features and stand-alone products like ContentShake. The commentary focused on improved engagement, retention and robust pricing of AI features ( ) | In Q3 2024, the discussion remains focused on leveraging AI through a multi-pronged monetization strategy. ContentShake AI continues to be a key example while integration into the enterprise product underscores AI’s value in enhancing capabilities ( ) | Consistent and positive sentiment – AI remains central, with an ongoing narrative that reinforces its monetization potential and integration across offerings. |
Net Revenue Retention & Customer Loyalty | Q4 2023, Q1 2024 and Q2 2024 consistently emphasized a dollar-based NRR of 107%, with enterprise segments experiencing higher retention and loyalty. There was a focus on expansion through cross-sell/up-sell and deepening customer relationships ( ) | Q3 2024 again cites an overall NRR of 107% alongside mention of strong loyalty among enterprise, mid-market and agency accounts contributing significantly to ARR ( ) | Stable and positive – The retention metrics and deep customer loyalty across segments remain steady and support a continued focus on enterprise customers. |
Pricing Strategy & ARR Growth Challenges | In Q4 2023, Q1 2024 and Q2 2024, pricing actions were a focal point – including price increases applied to new and select existing customers, premium positioning for enterprise offerings, and related ARR growth challenges such as muted growth in ARR per customer and shifts in cross-sell dynamics ( ) | Q3 2024 discussion reaffirms the premium pricing of the new enterprise product (priced around $50,000) and the migration of accounts while acknowledging challenges with ARR growth per customer, signaling a cautious yet optimistic outlook ( ) | Evolving with caution – The company continues to leverage significant pricing milestones for its enterprise offerings although growth per customer remains a nuanced challenge. |
Transition from SMB to Enterprise Sales & Execution Risks | Earlier periods (Q4 2023, Q1 2024, Q2 2024) stressed the strategic pivot by reallocating resources, building dedicated enterprise teams, and investing in new sale processes. Execution risks were acknowledged but largely mitigated by automation and strengthened CRM/infrastructure enhancements ( ) | Q3 2024 does not explicitly mention the SMB to enterprise transition or direct execution risks, though enterprise product developments continue to be highlighted ( ) | Less emphasis in Q3 – While enterprise momentum is evident, the explicit discussion on the SMB-to-enterprise transition and associated execution risks has diminished. |
Strategic Acquisitions Impact | Q2 2024 noted contributions from acquisitions (Brand24 and Ryte) to ARR growth and cross-sell opportunities. In Q1 and Q4 2023, these were mentioned less prominently or not at all ( ) | In Q3 2024 there is no mention of the strategic acquisitions impacts or a declining emphasis on them. | Declining emphasis – Recent period saw these topics drop from focus, implying less emphasis on acquisitions in the immediate narrative. |
Customer Growth Trends & New Customer Additions | Across Q4 2023, Q1 2024 and Q2 2024, the focus was on robust net new customer additions—with high numbers reported, especially in enterprise and mid-market segments, and acknowledgement of seasonal trends affecting some segments ( ) | In Q3 2024, 1,300 net new paying customers were added with continued emphasis on enterprise and mid-market growth, alongside migration metrics for the enterprise SEO product ( ) | Quality over quantity – Although the volume of new customers is lower compared to peak numbers in earlier periods, the focus is shifting towards high-value enterprise acquisition. |
Gross Margin Performance & Reinvestment Focus | Q4 2023 and Q1 2024 highlighted strong gross margin performance (above 80%) and reinvestment into growth areas like AI and enterprise products, fostering an efficient reinvestment strategy ( ) | Q3 2024 does not mention gross margin or reinvestment focus explicitly in the available commentary. | Not emphasized in Q3 – These topics are notably absent in recent discussion, suggesting a reduced focus or being taken as a given. |
Macroeconomic Resilience & Competitive Market Position | Q4 2023, Q1 2024 and Q2 2024 provided commentary on stable macro conditions, resilience despite headwinds, and emphasized strong, competitive positioning bolstered by a comprehensive product suite and AI capabilities ( ) | In Q3 2024, there is no explicit mention of macroeconomic resilience or detailed competitive positioning, although competitive wins in enterprise segments hint at underlying strength. | Reduced explicit focus – While competitive strength is implicitly supported by enterprise wins, explicit commentary on macro resilience is not raised in Q3 2024. |
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AI Monetization and Tailwinds from Google's AI in Search
Q: Are you sensing more interest in SEO due to Google's AI-infused search?
A: Semrush is experiencing significant interest from marketers wanting to feature in Google's new AI-generated search elements. These elements occupy prime real estate at the top of the search page, driving substantial traffic to publishers. Semrush's tools help marketers optimize content for these features, creating a tailwind for the company. -
Enterprise Product Adoption and Migration
Q: Update on enterprise product penetration into the 8,000 enterprise accounts?
A: Since the enterprise SEO product's general availability in May, Semrush has migrated over 90 accounts to this solution as of the end of October. The company is pleased with the traction and sees significant opportunity not only with existing accounts but also in displacing competitors and addressing a large white space in the market. -
Net Revenue Retention (NRR) Outlook
Q: When do you anticipate an inflection in net revenue retention?
A: Net revenue retention remains strong at 107% for the quarter. While the freelancer segment has retention below 100%, business and agency accounts have retention above 120%. Future NRR increases are expected from stabilization in the freelancer segment and continued momentum with enterprise products. -
ARR per Customer Growth Durability
Q: How should we think about durability in ARR per customer growth?
A: Despite a tougher year-over-year comparison due to last year's price increase rolled out to existing accounts, Semrush continues to see strong growth in average ARR per customer, particularly in the enterprise and mid-market segments driven by the enterprise SEO product. As adoption of enterprise products grows, the average ARR per customer is expected to tick upwards. -
Consolidation of SEO Tools and Functional Expansion
Q: Is the goal to replace other SEO solutions with your enterprise platform?
A: For brands, Semrush aims to provide a fully integrated, customizable platform that eliminates the need for multiple point solutions, offering efficiencies and results not previously possible. With the acquisition of Bright, they've added technical SEO capabilities to fully consolidate the SEO tech stack. -
Enterprise Customer User Base Size
Q: How large are the paying user populations at enterprise customers?
A: Some enterprise clients have user bases approaching 100, while others are in the mid-50s. There is substantial adoption of the enterprise SEO platform among large clients. -
Pricing Strategy and AI Monetization Avenues
Q: How is your pricing strategy being received, and which avenues are most positive?
A: Semrush monetizes AI through three main avenues. First, AI features like the overview and copilot are included in core plans to enhance engagement and improve retention. Second, specialized AI features are offered in higher-tier SKUs for specific segments, such as local businesses. Third, stand-alone AI products like ContentShake AI are generating significant traction as separate purchases from core subscriptions. The enterprise product, averaging around $50,000, greatly benefits from AI features.