Q4 2024 Earnings Summary
- Strong Momentum in Enterprise Segment Driving Growth: Semrush achieved significant growth in its enterprise segment, closing over 40 enterprise SEO deals in December alone and more deals in Q4 than the rest of the year combined. The number of customers paying over $10,000 increased 40% year-over-year to 4,300, indicating successful investments in the sales organization and a focus on providing enhanced value to leadership within customer organizations.
- Improving Profitability and Cash Flow Margins Indicate Financial Strength: The company has shown remarkable improvement in its financial metrics, with non-GAAP operating margins up by 2,700 basis points over eight quarters. Semrush is guiding for a further 260 basis point increase in free cash flow margin in 2025, reflecting continued operational efficiency and prudent investments.
- Strategic Investments in AI and Product Expansion Positioning for Future Growth: Semrush plans to launch a new AI Optimization (AIO) solution in the first half of 2025, demonstrating its commitment to innovation and capitalizing on emerging opportunities in AI-powered search. This initiative aims to provide customers with deeper insights from large language models, expanding product capabilities and potential revenue streams.
- Continued Softness in Lower-End Market Segments: Semrush is experiencing ongoing softness in the lower end of its market, with no signs of improvement as of the fourth quarter of 2024. This persistent weakness could impact overall growth and customer acquisition in these segments.
- Declining Net Revenue Retention Rate: The company's net revenue retention rate decreased from 107% to 106%, primarily due to challenges in the lower end of the market. This downtick may indicate issues with customer retention and expansion, potentially affecting future revenue growth.
- Flat Operating Margins Amid Increased Expenses: Semrush expects operating expenses to accelerate in 2025, leading to flat non-GAAP operating margins for the year. While investments in growth initiatives are positive, the increased expenses without corresponding margin improvement could pressure near-term profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Consolidated Total Revenue | +128% | Revenue surged from $83,394K in Q4 2023 to $190,311K in Q4 2024, driven by aggressive growth in paying customers, increased user licenses and add-ons, and effective cross‐sell and upsell strategies. This builds on the prior quarter trends where increases in customer adoption and geographic revenue (notably in Other Regions) laid the groundwork for this substantial momentum. |
United States Geographic Revenue | +9% | US revenue modestly increased from $39.29M to $42.85M, reflecting incremental gains from additional paying customers and higher attach rates. This moderate growth suggests the US market is more mature compared to other regions, where earlier periods also noted steady but less explosive expansion. |
United Kingdom Geographic Revenue | +6% | UK revenue rose from $8.02M to $8.49M due to slight improvements in user license uptake and add-on sales. The growth, while positive, remained subdued compared to Other Regions, continuing a steady trend seen in previous periods. |
Other Regions Geographic Revenue | +43% | Other Regions saw an impressive growth from $35.99M to $51.31M, spurred by robust customer acquisition and increased average revenue per customer through cross‐sell/upsell strategies. This dramatic expansion contrasts with more modest gains in the US and UK, building on previously accelerated growth trends. |
Operating Income | -35% | Operating income fell from $2,682K to $1,741K, primarily due to rising operating expenses in sales and marketing, R&D, and general administration. The increased personnel costs and stock-based compensation, previously noted in Q3 2024, outweighed the revenue gains, resulting in a significant margin compression. |
Net Income | -52% | Net income dropped from $6,874K to $3,293K, as the cost pressures—rising operating expenses and higher non-cash charges—eroded profitability despite strong revenue growth. This decline is more pronounced than the turnaround seen in Q3 2023, reflecting a worsening cost structure in the current period. |
Net Change in Cash | -78% | Net change in cash declined steeply from $17,659K to $3,792K. This was driven by substantially higher cash outflows in investing activities (e.g., capital expenditures and investments in property/equipment) combined with reduced operating cash flows, a pattern that intensifies the earlier observations from previous periods. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | $100.8M–$101.8M; ~21% YoY growth | no guidance | no current guidance |
Non-GAAP Operating Margin | Q4 2024 | Approximately 11% | no guidance | no current guidance |
Revenue | Q1 2025 | no prior guidance | $103.9M–$104.7M; ~22% YoY growth | no prior guidance |
Non-GAAP Operating Margin | Q1 2025 | no prior guidance | Approximately 11% | no prior guidance |
Revenue | FY 2024 | $375M–$376M (raised from $373M–$375M), ~22% YoY growth | no guidance | no current guidance |
Non-GAAP Operating Margin | FY 2024 | Approximately 12% | no guidance | no current guidance |
Free Cash Flow Margin | FY 2024 | Approximately 8% | no guidance | no current guidance |
Revenue | FY 2025 | no prior guidance | $448M–$453M; ~20% YoY growth | no prior guidance |
Non-GAAP Operating Margin | FY 2025 | no prior guidance | Approximately 12% | no prior guidance |
Free Cash Flow Margin | FY 2025 | no prior guidance | Approximately 12% (increase of 260 basis points vs. 2024) | no prior guidance |
Assumed Euro Exchange Rate | FY 2025 | Assumes 1.08 with ~30% of expenses in euros | 1.05 with ~30% of expenses in euros | lowered |
Long-term Outlook | FY 2024 | 20% compound annual revenue growth rate over the near term | no guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $100.8 million to $101.8 million | $102.65 million | Beat |
Revenue | FY 2024 | $375 million to $376 million | $376.82 million (sum of Q1, Q2, Q3, Q4) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Enterprise Segment Growth | In Q1, Semrush emphasized a shift to enterprise customers with over 5,000 accounts and strong ARPU advantages. In Q2, the company reported initial traction with a 37% YoY growth in its enterprise accounts and key wins with major banks and tech firms. In Q3, the narrative highlighted 8,000 enterprise accounts along with robust retention in sophisticated segments. | In Q4, enterprise momentum is clearly evident with customers paying over $50K growing 82% YoY to 336 customers and record numbers of enterprise SEO deals closed. | Increasing momentum in enterprise growth, signaling a successful upmarket transition. |
Enterprise SEO Product Adoption | Q1 saw the launch of the enterprise SEO product with early adoption by large-scale companies. Q2 detailed early-stage traction with premium pricing and rich feature sets including AI-powered workflows. Q3 further reinforced adoption with high-profile customer wins and demonstrated expansion in usage. | Q4 reported enhanced adoption with strong enterprise SEO solution deals (over 40 in December) and a dramatic upgrade in ARR per customer, underscoring its revenue‐driving impact. | Accelerated adoption and revenue impact are building a robust enterprise product story. |
AI Integration & Monetization | Q1 emphasized broad integration of AI tools and the launch of ContentShake AI to enhance organic content creation. Q2 focused on embedding AI into core products and launching stand-alone apps to drive upgrades. Q3 discussed a multi-pronged AI monetization strategy across features and enterprise products. | Q4 introduced the AI Optimization (AIO) initiative with plans for a new solution targeting LLM visibility, alongside active testing of pricing (e.g. $99/month) and an enterprise version rollout. | Growing focus on monetizing AI capabilities with new products and pricing experiments. |
Net Revenue Retention & Customer Retention | In Q1, Q2, and Q3, Semrush consistently reported a dollar-based NRR of 107% with differentiated retention—strong (>120%) for enterprise and mid-market, but weaker in lower segments. | Q4 saw the overall NRR dip slightly to 106%, attributed to macro challenges affecting the lower end, while retaining stronger rates among enterprise customers. | Slight softening overall from lower-end challenges, but robust retention in key upmarket segments remains. |
Profitability, Operating Margin & Cash Flow | Q1 reported a non-GAAP operating margin of 11.3% with growing free cash flow. Q2 saw margins leap to 13.4%, driven by significant efficiency improvements, and Q3 continued this trend with margins rising to 12.4% and solid cash flow generation. | Q4 maintained positive non-GAAP operating income with a margin of 11.5% and impressive cash flow figures, supporting full-year targets and reinforcing efficiency gains. | Consistent improvements and increased efficiency reinforce a bullish profitability outlook. |
Strategic Acquisitions for Cross-Sell and Organic Growth | Q1 mentioned cross-sell and upsell initiatives, with less emphasis on acquisitions. Q2 highlighted acquisitions like Brand24 and Ryte aimed at expanding product capabilities and boosting ARR. Q3 centered on the acquisition of Third Door Media to enhance content and educational outreach. | Q4 focused on the successful integration of multiple acquisitions that bolster the enterprise SEO offering and drive cross-sell opportunities, contributing to a 13% uplift in average ARR per paying customer. | Integration of acquisitions is now translating into tangible cross-sell and organic growth benefits. |
Market Segmentation Dynamics | Q1 discussed a deliberate pivot toward higher-value enterprise accounts despite some softness among SMBs. Q2 emphasized upmarket demand with little direct mention of lower-end struggles. Q3 contrasted lower-end segments (with below-100% retention) against robust upmarket performance. | Q4 explicitly contrasted the softness in the lower end—impacted by macro conditions—with strong enterprise demand, evidenced by an 82% YoY jump in high-paying customers. | A persistent strategic shift toward upmarket segments, with clearer delineation as lower-end softness becomes more pronounced. |
Pricing Power & ARR Growth Dynamics | Q1 showcased strong pricing power via premium enterprise ARPU (10-15x the company average) and reported ARR growth of 21% YoY. Q2 discussed impactful price increases delivering additional ARR, while Q3 underscored sustained ARR growth with an improved average ARR per customer. | Q4 reported a 22% YoY ARR growth to $411.6 million, with ongoing pricing experiments (including AI products) and a higher mix of enterprise deals driving revenue. | Robust and sustained pricing power continues to drive impressive ARR growth. |
Execution Risks in Transitioning from SMB to Enterprise | In Q1, potential execution risks were acknowledged regarding resource reallocation and meeting enterprise customization needs, albeit with strong confidence and ongoing system investments. Q2 hinted at challenges through the need for deep customization for enterprise clients. Q3 did not emphasize such risks. | Q4 did not explicitly flag execution risks, implying that earlier concerns have been managed through continued investments and process improvements. | Initial transition risks have largely been mitigated through strategic investments and streamlined processes. |
Macroeconomic Headwinds Impact on SMB Demand | Q1 mentioned macroeconomic headwinds indirectly while underscoring the shift to enterprise, and Q2 and Q3 did not focus on SMB-specific impacts. | Q4 explicitly reported that macroeconomic headwinds are negatively impacting SMB demand, prompting a cautious fiscal outlook for 2025. | Heightened concern over macro headwinds affecting the lower-end market, stressing potential future risks. |
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CEO Transition
Q: Why is now the right time for a CEO change?
A: Oleg Shchegolev explained that the business is performing very well, with a strong leadership team and results. The company has many opportunities ahead related to new technologies, and the change is important to address these opportunities. William Wagner, the new CEO, emphasized continuity, aligning growth among the user base, and scaling up existing strategies. -
2025 Guidance and Macro Outlook
Q: How is the macro environment affecting 2025 outlook?
A: Brian Mulroy stated they're not seeing changes in the macro environment impacting Semrush's cohorts. They maintain a prudent outlook, assuming continuation of current trends, and will look for hard economic indicators before adjusting guidance. -
Net Revenue Retention Rate
Q: What caused the NRR downtick to 106% and outlook?
A: The NRR declined slightly to 106% due to softness in the lower end of the market affected by macro challenges. Enterprise customers have a NRR greater than 120% and growing. They believe NRR has troughed and expect it to remain strong, with potential increase over the long term. -
Enterprise Segment Growth
Q: What's driving strong enterprise deal momentum?
A: In December, Semrush closed 40 new enterprise deals, a result of long-term investments in the sales organization and advanced product capabilities. Of the 144 enterprise customers, 60% were existing customers upgraded, and 40% were new, with average revenue increasing from about $10,000 to over $62,000. -
Operating Expenses and Revenue Acceleration
Q: When will revenue acceleration follow increased expenses?
A: Operating expenses are increasing as Semrush invests in expanding enterprise capabilities and AI initiatives. They expect these investments to drive durable growth and ultimately accelerate revenue in certain segments and products. -
AI Optimization (AIO) Product
Q: How will AIO impact products and pricing?
A: Semrush has one AIO product live at $99 per month, but pricing is still being tested. An enterprise version is expected in the first half of the year, focusing on measuring visibility in AI-powered search and extracting insights from large language models. -
Growth in $10K Customer Segment
Q: What's driving 40% growth in $10K customers?
A: Growth is driven by both enterprise contributions and core SMB customers purchasing more. Investments in the sales organization and enhanced product offerings are leading to strong cross-sell and upsell success. -
DeepSeek's Impact on Roadmap
Q: Is DeepSeek affecting your roadmap?
A: Oleg Shchegolev noted that DeepSeek demonstrates how to run models cheaply, contributing to the democratization of AI technology. While it's great for consumer access, Semrush focuses on the broader trend of technology becoming more accessible and its implications.