Time To Buy Semrush

Semrush reported strong fiscal year earnings, with revenue up 22% and annual recurring revenue run rate also increasing by 22%. Free cash flow margins improved to 9.8% for the year, up from barely positive a year ago. I'm also pleased to see a 40% increase in large customer count and growing adoption of the company's new Enterprise SEO solution. Additionally, guidance for 2025 aligns with our valuation model. A few adjustments to growth and dilution assumptions result in a $1 increase in the fair value estimate, bringing it to $15.50.

The stock's decline appears to be driven by the announcement that co-founder Oleg Shchegolev will step down as CEO to focus on AI product innovation as CTO. Former LogMeIn CEO Bill Wagner will take over as CEO. While I generally favor founder-led companies, this transition keeps leadership closely tied to the company's vision, and Wagner may even be better suited to drive Semrush’s expansion into the enterprise market, where the most lucrative customers are. Ultimately, this change does not significantly impact my outlook.

With the fair value increase and the recent stock drop, Semrush is now trading more than 25% below the target price. That makes it a BUY right now! It earns an immediate addition to the Buy List. I believe investors could see strong returns over the medium term.