Summary
Semrush reported third quarter revenue of $78.7 million, up 20% from a year earlier. Gross profit was $65.7 million, up 23.0%, and gross margin rose 2.3 percentage points to 83.4%. The company swung to operating income of $2.7 million, and operating margin was 3.5%, up 19.1 percentage points. Net income was $4.2 million, and diluted EPS was $0.03. Non-GAAP net income was $8.4 million for the quarter, compared with a non-GAAP net loss of $7.1 million a year earlier.
ARR reached $322.8 million as of September 30, 2023, up 21% year over year. Paying customers totaled about 106,800, up nearly 14%, and registered free active customers surpassed 987,000, up 25%. Customers who pay more than $10,000 annually grew by more than 20%. Dollar-based net revenue retention was 109% as of September 30, 2023, down from 112% in the previous quarter and from 118% at December 31, 2022. That decline is the clearest soft spot in the release. Growth is leaning more on new customer additions than on expansion within the installed base.
The company kept spending on generative AI and product breadth. It released two ChatGPT features in the Listing Management tool, introduced an AI Social Media Post Generator, and launched the Ecommerce Booster app for Shopify listings. Those additions support the stated pillars of new user growth, more value per user, and new products. Sales and marketing headcount rose 25%, research and development headcount rose 14%, and general and administrative headcount rose 8% from a year earlier, so the cost base is still expanding.
Cash generation improved in the quarter. Operating cash flow was $6.4 million, up from a year earlier, while capital expenditures were $0.1 million, down from a year earlier. Deferred revenue was $55.2 million, up 17.2%, and remaining performance obligations were $1.3 million. For the first nine months of 2023, revenue was $224.3 million, up 20.9%, and gross margin was 82.8%, up 2.5 percentage points. Operating margin for the nine months was negative 4.6%, up 6.8 percentage points, and the operating loss narrowed to $10.3 million. The nine-month net loss narrowed to $5.9 million, and diluted EPS for the nine months was negative $0.04. Nine-month operating cash flow was negative $3.6 million, down year over year, and nine-month capital expenditures were $1.1 million, down year over year.
Guidance points to a steady finish. For the fourth quarter of 2023, Semrush expects revenue of $82.7 million to $83.7 million, which at the midpoint would represent growth of approximately 21% year over year, and non-GAAP net income of $4.1 million to $6.1 million. For the full year 2023, revenue guidance is $307.0 million to $308.0 million, roughly 21% growth at the midpoint. Full-year non-GAAP net income guidance was raised to $9.0 million to $11.0 million from a prior range of $2.0 million to $4.0 million. The company ties the increase to better efficiency rather than a change in the top line, which it tightened.
The risks are not hard to spot. Net revenue retention is falling, so the revenue mix depends on continued customer acquisition at a similar pace. Foreign currency swings run through other income, and the company carries a full valuation allowance against net deferred tax assets. Its $45.0 million revolving credit facility matures on January 12, 2024, though it had not drawn on it. Management expects sales and marketing and general and administrative expenses to fall as a percentage of revenue over time, while research and development spending is expected to rise in absolute dollars. Holding the margin gains will take discipline if growth in paying customers slows.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $78.7M | $74.7M | +5.4% | $65.8M | +19.6% |
| Gross profit | $65.7M | $61.7M | +6.4% | $53.4M | +23.0% |
| Gross margin | 83.4% | 82.6% | +0.8 pp | 81.2% | +2.3 pp |
| Research & development | $14.1M | $14.1M | -0.3% | $10.1M | +38.9% |
| Sales & marketing | $30.1M | $30.2M | -0.5% | $30.6M | -1.6% |
| General & administrative | $18.8M | $19.4M | -3.2% | $17.0M | +10.4% |
| Total operating expenses | $62.9M | $64.0M | -1.7% | $63.6M | -1.1% |
| Operating income (loss) | $2.7M | -$2.3M | +218.0% | -$10.3M | +126.8% |
| Operating margin | 3.5% | -3.1% | +6.6 pp | -15.6% | +19.1 pp |
| Net income (loss) | $4.2M | -$279.0K | +1610.8% | -$9.1M | +146.4% |
| Net margin | 5.3% | -0.4% | +5.7 pp | -13.8% | +19.2 pp |
| Diluted EPS | $0.03 | $0.00 | +$0.03 | -$0.06 | +$0.09 |
Risks
Rapid adoption of artificial intelligence platforms such as ChatGPT and new social media networks could reduce demand for traditional search engine technologies, forcing costly integrations and making current products less competitive or obsolete.
Substantially all revenue comes from premium subscriptions, and most paying customers choose monthly terms that can be cancelled monthly; the dollar-based net revenue retention rate was approximately 109% as of September 30, 2023, compared with 118% as of December 31, 2022.
The market is intensely competitive and price sensitive, with competitors offering lower-priced or free products or bundling solutions; we may need price cuts or higher sales and marketing spend, which would harm operating results.
The platform relies on third-party data, including social media APIs from Facebook, Twitter, Instagram, Pinterest, and LinkedIn and paid clickstream, search engine, and online advertising data; loss of access or less favorable terms could impair functionality and require costly alternatives.
Search engines, social networking sites, and third-party AI services can change algorithms, anti-spam policies, or API terms; such changes could diminish backlink analytics, link building, and Prowly email distribution tools or render them obsolete.
Economic uncertainty may cause customers, especially SMBs that make up a large portion of the paying customer base, to reduce or stop spending; most customers are on month-to-month premium subscriptions that can be cancelled at any time.
Cookie and tracking restrictions under laws such as the CCPA, CPRA, EU GDPR, and e-Privacy Directive, plus browser blocking and regulatory inquiries, could limit data collection, retargeting, and new customer acquisition.
The company identified further material weaknesses in internal control over financial reporting for the quarter ended September 30, 2022 related to the financial statement close and cash disbursement processes; remediation is ongoing and failure could lead to restatements or listing issues.
Approximately 52% of revenue for the nine months ended September 30, 2023 was generated from sales to paying customers outside the United States, exposing the company to geopolitical instability, military conflicts, sanctions, foreign exchange fluctuations, and relocation challenges including out of Russia.
A tightening and increasingly competitive labor market, recent labor cost pressures, and costs and operational complexities from relocating personnel out of Russia could increase expenses and make it harder to retain product and development talent.
Growth depends on attracting new free and paying customers through unpaid content marketing and paid advertising; increasing marketing spend may not maintain traffic quality or may raise customer acquisition costs per paying customer.
The company has been the target of attempts to exploit system vulnerabilities, including a brute force attack that resulted in access to affiliate program partner contact information; remote work and third-party AI use increase breach risk and potential liability.
The $45.0 million revolving credit facility matures on January 12, 2024 and includes covenants and a borrowing base tied to monthly recurring revenue; a default could accelerate obligations secured by substantially all assets, and net cash used in operating activities was $3.6 million for the nine months ended September 30, 2023 versus $0.0 million provided in the prior year period.
SaaS KPIs
All quarters →ARR per Paying Customer
Paying Customers
ARR
Dollar-Based Net Revenue Retention
Registered Free Active Customers
Summary, forecast, risks and KPIs are extracted from SEMrush Holdings, Inc.'s SEC filings for Q3 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.