SimilarWeb (SMWB, Financial) is a digital intelligence provider which sells data on competitor website traffic, digital advertising, search keywords and more. The company was founded in 2007 in Israel and went public recently in May 2021.
The stock recently caught my eye as a potential value opportunity because it is down by 55% from all-time highs, and because growth stock investor Catherine Wood (Trades, Portfolio) of Ark Invest was buying shares in the first quarter of 2022. As a user of this company’s product, I believe they do offer a leading service coupled with sky-high margins. Let’s dive into the business model, financials and valuation to see why I like this stock.
Business model
SimilarWeb provides market intelligence for websites and businesses. They enable their customers to see estimates of competitors' traffic, what keywords they rank for on Alphabet's Google (GOOG, Financial)(GOOGL, Financial), which websites refer to them and much more. This enables businesses to benchmark their own data against competitors and enable easy tracking and analyzing.
As a website owner, I have used the platform to monitor competitor traffic and really understand who the big players are in the market. For example, you can analyze a company's e-commerce web traffic prior to an earnings report to help estimate if they would have generated more or less sales. I see value in the SimilarWeb platform and believe it is very useful for businesses.
Taking things one step further, SimilarWeb customers can input their own data and combine this with other data sources to increase metrics across sales and marketing.
The company has over 3,700 leading customers across a variety of industries, including Walmart (WMT, Financial), Booking.com (BKNG, Financial), Adobe (ADBE, Financial) and more. The beauty of SimilarWeb is once a business knows their competitor is using the product, then this should increase signups thanks to fear of missing out.
Financials
SimilarWeb recently announced their earnings for the first quarter of 2022. Revenue increased by a rapid 51%, going from $29 million in the first quarter of 2021 to $44 million in the first quarter of 2022.
They also have a strong net dollar retention rate of 115%, which grows to 127% for customers with over $100k in annual recurring revenue.
Source: SimiarWeb investor materials
SimilarWeb has a high Gross Margin of 77%, but it is currently operating at a loss. Part of this can be attributed to sales and marketing, which eats up 65% of revenue, and R&D, which takes up 28% of revenue. Their long-term target is to reach a 25% operating margin, which is the average for the software industry.
SimilarWeb has a strong balance sheet with $128 million in cash and virtually no debt.
Valuation
In terms of valuation, SimilarWeb is currently trading at a price-sales ratio of 4, which is low relative to the short public history we have for the stock.
SimilarWeb is a great company which has a leading product offering in the market intelligence industry. There are competitors in this space such as Ahrefs and Moz Pro, but SimilarWeb does seem to provide the most accurate traffic information from my initial checks.
The company is growing revenues at a rapid 50% clip, and the stock is trading low relative to history. They still have a long way to go as they bring in just $150 million in revenue and are valued at over $700 million. On the other hand, thanks to successful fundraising efforts, they have $128 million in cash and no debt, which is a bonus.
In the long term, this looks to be a great growth stock in my opinion, and I believe it should do well once the high interest rate environment starts to change.
