Similarweb (NYSE: SMWB) is poised to benefit significantly from the growing digitalization of businesses, leveraging its competitive advantages in data sourcing and synthesis, and its extensive historical datasets.
As growth has reaccelerated in recent quarters with various positive operating metrics, Similarweb’s growth recovery is expected to continue.
Company Overview
Similarweb is a digital analytics platform that provides web traffic data and analysis to businesses across multiple industries. The company’s five key product lines—digital research, digital marketing, shoppers, sales, and investor intelligence—help users acquire the right market intelligence.
In FY23, Similarweb generated $218 million in revenue and $171 million in gross profit, although it was not profitable, reporting an adjusted EBIT margin of -2%. However, the company has reported a positive adjusted EBIT margin on a quarterly basis since 3Q23, reaching 8.4% in 4Q23 and 4.7% in 1Q24.
Leading Player for Market Intelligence
Similarweb stands to benefit from the ongoing shift towards digitalization. Traditional methods of market research and point-of-sale data collection are becoming less effective as more companies generate revenue through digital channels such as e-commerce, subscriptions, and digital advertising.
In the digital world, data is more modular, providing greater opportunities for analytics and insights. Similarweb’s ability to collect data from diverse sources and synthesize it into actionable insights is a significant competitive advantage.
The company’s data collection process involves multiple sources, including first-party data, its contributor network, public data, and partners. This diverse approach helps ensure accuracy and depth, as Similarweb collects around 1% of internet data daily.
The company’s commitment to compliance with data privacy regulations like IDFA and GDPR ensures that it remains a reliable and future-proof service provider.
Similarweb’s long-established data collection processes and extensive historical datasets create a substantial barrier to entry for potential competitors. Even if a new player could replicate Similarweb’s daily data collection capabilities, they would still lag in terms of the total amount of historical data.
Similarweb’s competitive advantage is further underscored by its ability to process raw data into valuable insights for clients.
Growth Turnaround
Similarweb operates in a market estimated to be worth $52 billion, and its penetration is less than 1% based on LTM revenue. Historically, Similarweb has grown rapidly, with annual revenue growth rates of 30-40% before experiencing a slowdown from 1Q22 to 3Q23.
However, growth has reaccelerated, with revenue increasing by 10.5% in 4Q23 and 11.8% in 1Q24, up from 9.6% in 3Q23.
Key operating metrics also indicate a positive trend: the net revenue retention rate stabilized at 98% in 1Q24, customer growth accelerated to 16.4% in 4Q23 and remained stable at 15.9% in 1Q24, and the number of customers with over $100,000 in annual recurring revenue saw its first year-over-year growth acceleration in seven quarters to 9.9% in 1Q24.
Valuation
Similarweb’s stock appears undervalued given its growth potential. A target price based on FY26 revenue of $339 million and a forward revenue multiple of 3x suggests a share price of around $13.
This valuation assumes a recovery in growth to 20% by FY26, a reasonable expectation given the company’s historical growth rates and the ongoing digitalization trend.
Investment Risk
Potential risks include a major breach of data privacy compliance, which could impact sales and customer growth, and further macroeconomic slowdowns that might lead to reduced marketing spending by customers.
Conclusion
Similarweb’s leading position in the digital analytics industry, coupled with its unique data collection and processing capabilities, positions it well to capitalize on the ongoing digitalization trend.
Recent positive growth indicators suggest that the company is on a path to recovery, and its stock appears undervalued, given its long-term growth potential.
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Kris is a finance consultant, content marketer, and speaker specializing in helping brands and business owners navigate complex concepts and decisions. Since earning her Finance and Accounting degree, Kris has spent over half a decade writing about financial and technological concerns of brands spanning different life cycles.
