Q4 2023 Summary
Published Jan 15, 2025, 2:30 PM UTC- Record number of 7-figure deals in Q4, indicating strong demand from large strategic customers across sectors like CPGs, telco, financial services, and big tech. This momentum reflects improvements in pricing, packaging, and innovation, leading to larger deal sizes and fueling growth.
- Significant increase in customer base, adding 341 accounts quarter-over-quarter, the highest since going public, driven by strong execution, adoption of Similarweb 3.0, and the self-serve offering. This expansion demonstrates the company's effective market penetration and customer acquisition strategies.
- Improved profitability with positive free cash flow, achieving positive free cash flow in Q4 and expecting to generate free cash flow in all four quarters of 2024. Management is committed to maintaining profitability while investing in growth, indicating strong financial discipline and a solid financial position.
- Elongated sales cycles are causing delays in closing deals, suggesting ongoing macroeconomic pressures that may continue to impact revenue growth. Jason Schwartz noted that "some of these deals have been in the pipeline for a while and just took a long time to close."
- While management believes Net Revenue Retention (NRR) has hit a trough, the path to recovery is uncertain amid ongoing market challenges. Jason Schwartz acknowledged, "We think that we have hit the trough and we're looking forward to seeing that metric continue to expand and grow over the year."
- The increase in new customer additions may be driven by lower-priced offerings, which could lead to a decrease in average revenue per customer and potentially impact overall revenue growth. Or Offer mentioned that the strong momentum was due to "the self-serve offering that a lot of customers choose to buy yearly," indicating lower entry-level price points.
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NRR Stabilization
Q: Is Q4 the potential trough for NRR, with future stability expected?
A: Jason Schwartz confirmed they believe they have hit the trough in Net Revenue Retention (NRR) and look forward to seeing the metric expand and grow over the year, emphasizing it's a focus area to drive improvement. -
Growth Path via Similarweb 3.0
Q: What's the upgrade path from smaller package sizes with Similarweb 3.0?
A: Jason Schwartz explained that with Similarweb 3.0 pricing, most customers start at entry-level prices and grow over time. This approach institutionalizes best practices, making it seamless for customers to upgrade, which is expected to improve onboarding speed and NRR over time. -
Payback Period Impact
Q: How will Similarweb 3.0 rollout impact the payback period?
A: Jason Schwartz noted that Similarweb 3.0 is leading to faster deal closures, improving ROI and cash recovery. He expects to see more impact toward the middle or latter part of 2024. -
Demand Across Segments
Q: How is demand changing across SMB, mid-market, and enterprise segments?
A: Or Offer stated that in Q4, there was acceleration in strategic (enterprise) accounts and strong momentum in the SMB segment, reflecting overall growth in these areas. -
Large 7-Figure Deals
Q: Which industries are driving the large 7-figure deals?
A: Or Offer mentioned that momentum in strategic accounts spans sectors like CPGs, telco, financial services, and big tech, all showing strong performance due to focused efforts on big accounts. -
Spending and Profitability Outlook
Q: How are you approaching spending and investments next year?
A: Jason Schwartz stated they are using the Rule of 40 as a guide, intending to maintain profitability while investing in areas that drive top-line growth, such as sales, marketing, and R&D. -
Shift from Cost-Cutting to Growth
Q: Are customers shifting focus from cutting costs to investing in growth?
A: Or Offer acknowledged that many corporates are completing cost optimizations and now focusing on responsible growth, similar to Similarweb's approach of driving profitable growth. -
Gen AI and Data Usage
Q: How does your data fit into the generative AI landscape?
A: Or Offer explained that companies use Similarweb's data to train LLMs for better internet understanding, and there's increased demand for insights into changing consumer behaviors due to AI, providing a tailwind for the company. -
Churn Stabilization in Sub-$100k Customers
Q: Can you comment on churn levels among customers below $100k?
A: Or Offer reported that churn has stabilized with a slight increase in retention rates, indicating positive momentum reflected in improved logo retention. -
Net New Customer Momentum
Q: Is the rise in net new customers a year-end budget flush or positive trend?
A: Jason Schwartz believes it's due to buying patterns and the simplicity introduced with Similarweb 3.0, making it easier for new customers to get started, rather than a budget flush. -
Record Account Additions
Q: Was the addition of 341 accounts due to lower pricing in Similarweb 3.0?
A: Or Offer attributed strong momentum to good team execution and the self-serve offering, with customers choosing yearly purchases, boosting numbers across all core offerings. -
Momentum from Bigger Deals
Q: What contributed to momentum with strategic customers and bigger deals?
A: Or Offer highlighted improvements in pricing, packaging, and innovation in solutions over the past year, which are yielding positive results. Jason Schwartz added that elongated sales cycles are converting, providing good momentum entering 2024. -
Impact of Multiyear Contracts
Q: How do multiyear contracts affect recovery cadence?
A: Or Offer sees no negative impact, as multiyear customers are engaged long-term due to the great value they receive, and expects to offer them more products and deals down the road. -
Quarter Linearity
Q: Any color on linearity in the quarter and into Q1?
A: Jason Schwartz noted they saw more back-end linearity with bigger deals closing in the latter half of the quarter, which is a good indication for future results.