Similarweb: A Cheap SaaS Play

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Investment Thesis

Similarweb (NYSE:SMWB) went nationalist backmost successful 2021 but shares person been dropping non-stop owed to rising rates, elevated inflation, and a deficiency of appetite for maturation companies. It is now trading astatine conscionable $6.59, down astir 70% below its IPO price.

However, dissimilar nan stock price, nan company’s fundamentals stay solid. It has a compelling level pinch a immense addressable market. It continues to study beardown maturation pinch gross up 28% and besides importantly narrowed its nonaccomplishment from nan anterior year. After nan immense drop, nan existent valuation seems charismatic arsenic multiples are meaningfully beneath SaaS (software arsenic a service) peers. I judge nan existent value level offers decent upside imaginable truthful I complaint SMWB banal arsenic a buy.

Data by YCharts

Huge Opportunities

Similarweb is simply a US-based integer analytics institution founded in 2009. The company’s intelligence level offers information and insights to thief customers pinch research, marketing, sales, etc.

It provides different solutions for marketplace analysis, benchmarking, keyword research, competitory analysis, and more. The institution analyzes 100+ cardinal websites and 4.7+ cardinal apps from aggregate sources and converts them into unsocial insights done AI and instrumentality learning. This ensures each its insights are top-notch and up-to-date. Its existing customers see blue-chip companies specified arsenic Google (GOOG) (GOOGL), Walmart (WMT), Pepsi (PEP), and others.

Similarweb

Similarweb has immense marketplace opportunities. The institution estimates its existent TAM (total addressable market) to beryllium $44 billion. The TAM should turn complete clip arsenic it is launching products for caller usage cases specified arsenic investing and e-commerce.

For instance, nan caller investor intelligence solution tin grow its TAM by $4.4 billion. The company’s products are seeing beardown request arsenic customers want amended visibility of nan marketplace scenery successful bid to make amended decisions. A batch of nan existing devices let companies to analyse their ain capacity but not competitors aliases partners. Similarweb is capable to scope that unsighted spot which importantly broadens nan customer’s visibility. The request for much broad insights should proceed to beryllium a coagulated tailwind moving forward.

Andrew Smith, head of MGM Resorts, on Similarweb:

The logic that we usage Similarweb is because it gives america thing we don’t have. With Google Analytics aliases PowerBI, we cognize what’s happening pinch us. It’s what’s happening pinch our competitors, our affiliates, our partners, that’s what we request to know. And there’s thing for illustration that. For MGM Resorts, if we were to suffer Similarweb we would suffer nan expertise to cognize what our partners, what our competitors, and what nan manufacture was doing.

Similarweb

Q4 Earnings

Similarweb conscionable reported its fourth-quarter earnings and nan results are coagulated considering nan macro backdrop.

The institution reported gross of $51.3 million, up 28% YoY (year complete year) compared to $40.2 million. The maturation is driven by nan summation successful nan number of customers pinch ARR (annual recurring revenue) of $100,000 aliases above, which grew 24% to 337. It is besides seeing beardown description opportunities wrong nan group. The dollar-based nett retention complaint for nan group was 120%. The full number of each customers accrued 16% YoY to 4,049 and nan wide dollar-based nett retention complaint was 109%. The comparative softness is owed to nan weakness successful SMBs arsenic they are much exposed to macro headwinds. Thanks to costs optimization, costs of income grew astatine a slower gait than revenue. This resulted successful gross profit expanding 31.9% from $29.5 cardinal to $38.9 cardinal and gross profit margins expanding 250 ground points from 73.3% to 75.8%.

Similarweb

The bottommost statement was still antagonistic but narrowed substantially which is very positive. The institution managed to beryllium very disciplined successful spending and continued to show operating leverage. Despite gross increasing 28%, operating expenses only accrued 2% YoY from $52.4 cardinal to $53.5 million. S&M (sales and marketing) expenses accrued 7.5% YoY but sewage offset by nan diminution successful R&D (research and development) and G&A (general and administrative) expenses, which were down 2.1% and 6.9% respectively. This resulted successful an operating nonaccomplishment of $(14.6) cardinal compared to $(22.9) million, representing a important betterment of 36.2% YoY.

Guidance for FY23 seems beautiful anemic arsenic gross maturation is only forecasted to beryllium astir 15%. However, this is chiefly owed to nan institution shifting its attraction to profitability. It expects non-GAAP operating nonaccomplishment to further amended and make affirmative rate travel by nan 4th quarter, which is immense successful my opinion.

Jason Schwartz, CFO, connected guidance for FY23:

“We intend to execute sustained affirmative free rate travel quarterly by nan 4th fourth of 2023. We person aligned our strategical objectives connected balancing our gross maturation pinch accelerating our profitability. We proceed to attraction connected disciplined execution successful this challenging environment, which will beryllium captious to accomplishing our objectives successful 2023.”

Similarweb

Investors' Takeaway

Overall, I deliberation this quarter’s results are beautiful decent. Top-line maturation continues to beryllium beardown acknowledgment to nan spot successful larger customers. The bottommost statement besides improved substantially acknowledgment to amended costs and disbursal management. The guideline for maturation was soft but prioritizing profitability successful nan existent situation is much important successful my opinion. As nan macro situation rebounds later on, customer spending should besides summation which will re-accelerate growth. After nan monolithic drop, nan institution is trading astatine a P/S ratio of conscionable 2x which is very inexpensive for a SaaS business pinch immense marketplace opportunities. For instance, (WCLD), an ETF comprised of aggregate SaaS companies specified arsenic Shopify (SHOP) and monday.com (MNDY), is trading astatine a P/S ratio of 5.2x. Similarweb is truthful discounted that moreover if maturation rates were to slow to mid-teens, location would still beryllium meaningful upside potential. Therefore, I complaint nan institution arsenic a buy.

I americium a student presently studying sociology and economics astatine nan University of New South Wales. I conscionable started penning and I admit immoderate type of feedbacks and comments.