All right, we're gonna get started. Good afternoon, everyone. Welcome to Semrush Analyst Day. It's great to be here with all of you in New York. For those new to Semrush, I'm Brian Mulroy, our Chief Financial Officer, and I'm joined today by Oleg Shchegolev, our founder and CEO, Eugene Levin, our president, Andrew Warden, our Chief Marketing Officer, and Tommy O'Brien, our Chief Sales Officer. I see a lot of familiar faces out there, and I'm looking forward to connecting with you, and some new faces that I'm looking forward to meeting. We're delighted to have all of you here. This event serves as an opportunity for us to connect with you, our valued shareholders and analysts, and we have a great agenda for you today. We're gonna start off with Oleg.
He's gonna go through our history and vision, and talk more about our strong track record of success and vision for future growth. Eugene's gonna pick it up from there and dive into our product strategy, and talk more about the increasingly complex and critical problem that we solve for our customers. Andrew's then gonna give you your first sneak peek or a showcase of our enterprise SEO product. I know you've all heard a lot about that, and we're really excited to showcase it for you today. We're seeing some really good momentum and strong traction in the market. Andrew and Tommy are then gonna get into our go-to-market strategy, and then finally, I'm gonna dive into the financials, including a new perspective, showing our business by customer segments, which I think you'll find incredibly valuable.
We're gonna pause for a few points throughout to go through Q&A. So the first time will be after Oleg and Eugene, then after Andrew and Tommy go through their go-to-market, and then one final time at the end. All right, the usual safe harbor, a couple of logistical items before I get started, and you know the drill. We're gonna have some forward-looking statements. These are based on our best judgment, based on facts and circumstances that exist today, but of course, there are risks and uncertainties related to those. Two, we're doing a webcast. Webcast is live, and welcome to everyone that's joining us via the webcast. One ask is, just please mute your phones, and then we are going to be posting this on our investor relations website. So if you don't catch everything live, don't worry about it.
We'll have the transcript, the webcast, and the presentation up on our investor relations website. In terms of numbers, you're gonna see a lot of them. Most numbers that are financials are gonna be as of our most recent reported quarter, June thirtieth. But there's a few metrics that are evolving quickly, and we want to get to a little bit more updated perspective. So you're gonna see average ARR per paying customer and a brand-new disclosure showing the number of accounts paying more than 10 and 50 thousand as of the end of September. All right, that's it. Please join me in welcoming Oleg Shchegolev, our founder and CEO.
Oops! Thank you, Brian. Thank you, everyone, for joining us today. It fills me with a great sense of pride all the time when we meet our investors, our customers, and employees. Look, our journey at Semrush began 16 years ago. We started as a group of engineers. We bootstrapped. We were dreamers with a single product in an emerging industry. We had a strong passion on marketing, and we wanted to make it easier for everyone. 16 years later, we are proud to be a market-leading platform focused on driving online visibility and our vision today with right analytics, with right tools, with right data, anyone can be a marketer. And look, today we help companies to create brand awareness, generate traffic, and ultimately convert this traffic to paying customers.
Over this time, our product has evolved. We started with a single SEO solution focused on professionals, and we evolved it to search engine marketing toolkit. Then we adapted it to a suite of online visibility tools, and now it is enterprise-ready digital marketing platform, and it covers search engine optimization, paid advertising, social media, local marketing, brand marketing, content marketing, and data and intelligence. Let's talk about few pillars of our success. Look, we have built a strong foundation. We address complex and fundamental customers' problems, and our growth is based on multiple growth drivers, and I want to start with a strong foundation and track record of our success. It gives us our confidence.
First, look, we are a market-leading platform, and we serve customers from virtually all industries, from all market segments, from all marketing disciplines. We serve customers in more than 150 countries, and now, we have over 116,000 paying customers and approximately 8,000 enterprise customers. When we talk about enterprise customers, it includes nearly 40% of Fortune 500, and we can name such brands as Tesla, Walmart, Salesforce, and more.
We have delivered very strong market-leading growth with 36% compound growth over the last six years, and we expect to cross $400 million in annual recurring revenue soon. And all of this we delivered with no debt and over $230 million in cash and equivalents and with double-digit profit margins to boot. So, a little about our employees. Now we have over 1,600 employees in 13 offices and with award-winning strong culture focused on results. And we drive this culture and focus our employees on making best-in-class products and experiences for our customers.
We drive a culture of ownership, and our decisions are data-driven, and we constantly check performance of our investments and effectiveness of our sales and marketing strategies. It is very important to touch large market opportunity. It has more than tripled since our IPO in 2021, and we are ready to tackle this new white space with our innovations and investments. Brian will share more details about this topic in his part. Finally, we have built strong competitive moat. Our data is comprehensive. For 16 years, we trained our muscles with how to work with data of many types. Moreover, our data is enhanced by a flywheel effect from millions of our users. And at the same time, gross margin is about 85%.
It allows us to reinvest back into the business and innovate in a pace exceeding our competition, and we have high degree of brand loyalty with a complete platform at global scale. So now let's get into what Semrush does and the increasingly complex problems we solve for our customers. Each challenge we discuss is interconnected, and only a complete solution like Semrush can help with it. First of all, our success is directly tied to the success of our customers, and for businesses to be successful today, it's very important to be visible online. We need to build their online brand awareness. We need to be relevant and present in conversations in social media.
We need to manage their reputation and media perception, and we need to focus on high-quality content that resonates with their audience across all available channels, but it is not so easy today. First of all, I believe you would agree with me, attention is very limited right now. It's a very important topic, and Eugene will give more light on this in his part. At the same time, amount of marketing tools is exploding, especially with generative AI technologies, and for marketers it is harder and harder to navigate how to connect these tools and what we should use right now, and also budgets are very limited. According to a May 2024 Gartner survey, marketing budgets have decreased to 7.7% of overall company revenue in 2024.
You see, life of a marketer right now is very challenging, and we help to address all these problems. We understand these problems very well at Semrush just because, look, we are both... We are marketers and technologists. Our platform utilizes data and intelligence at the core and surrounded by AI powered interconnected hubs focused on search engine optimization, paid advertising, social media management, local marketing, brand marketing, and content marketing. And our platform helps marketers to find opportunities and deliver most efficient results in relevant marketing channels. Eugene will give more about this topic in his part, just a few minutes later. And look, customers love us. Please don't just take our words here. We are recognized as a leader with 22 best software awards and high customer satisfaction ratings.
Look, take a look at G2.com to hear more from our customers. We want to reinforce this. Let's hear from few of our customers directly. Oops.
Pastreez is the first authentic online French bakery.
I love teaching group fitness classes, and I wanted to turn that into a scalable online business model.
My name's Ed. I'm the CEO and co-founder of Smileworks. We're the most popular dental practice in Liverpool.
Hi, I'm James from CTI Group. We work with clients to help increase e-commerce sales, and we've been working with Semrush now for about half a decade.
I use Semrush to have strong data, strong topics, and strong content on our website.
People are gonna look for your stuff.
Before we started using Semrush, I would just blog about whatever I felt like doing that day, and I never knew if it was going to be a hit or if it was going to be a flop.
We need to do really good keyword research, and Semrush helps me with all of these things, because I couldn't live without it.
I wanted to share free workouts with people, but still find a way to make it monetizable and scale a business out of it.
Semrush helped me increase traffic for a client by 15 times in less than one month.
Semrush helps us win our biggest clients. It helps us quickly analyze our prospects, market, competitors, and growth opportunities, all before we even meet.
With Semrush, you can evaluate, like, for example, macarons near me. It was, like, 60,000 searches a month. So even before we started the business, we were able to test the U.S. market for search volume, keywords from France. Give me a five.
...With Semrush, we instantly found the key market players, their traffic generation strategies, and what channels they focused on. This gave us a great benchmark, a starting point for our own marketing.
When it comes to proposals, we like to start with data. We'll have a look at how the client's currently performing and where the potential opportunity is to increase performance.
With Semrush, I can get traffic, and if I can get traffic, I can get inquiries, and if I can get inquiries, I can get patients.
I feel connected to my community, and we're ranking more for those keywords that I know that they're searching for.
We started realizing that there were keywords out there we could optimize, we could rank on the first page of Google, get more eyeballs to our site, make greater ad revenue, and the whole thing started working magically.
So that now we have number one positions for over one hundred and thirty-eight high consumer interest keywords.
With Semrush, we never needed to guess. It gave us useful data and tips to guide our entire SEO strategy.
I can just focus on doing what I love, which is making really good recipes and knowing that they're going to reach my community.
We need to dominate the local market, and we can do that with Semrush.
Semrush has transformed our agency.
Okay, and look, as a founder, I wanna say that we are very pleased with our performance today, and we are even more optimistic about our future. Before turning it over to Eugene, Andrew, Tommy, and Brian, I want to frame up our strategy and vision and tell you a little bit more about how we crossed one billion in annual recurring revenue. Look, our growth strategy is simple. Overall, we expect our multi-product and multi-segment strategy will continue to drive results and enable Semrush to deliver growth for the long term. First, our platform is now used by over one hundred and sixteen thousand paying customers, including eight thousand enterprises, and we believe there are millions of businesses, and agencies, and marketers who will benefit from Semrush.
Also, we have expanded our average ARR per paying customer by 2x since 2018, and we believe we can do it again. At the same time, we launched our enterprise SEO solution, and we see strong demand for it and also, finally, our enterprise future is not just about search engine optimization. We plan, and our plan and vision is to extend features across all channels. With that, I would like to pass the show on to Eugene to talk a little bit more about our product strategy.
Thank you, Oleg. I hope you can see the passion, the vision for the future. You know, when I joined the company about nine years ago, I was immediately impressed by humble beginnings, by strong and innovative culture, by all the value that we bring to the customers. And now, nine years later, while I'm extremely proud of everything we have achieved, I'm even more optimistic about the future ahead of us. We've done a lot, but there is still a lot of things to do. And, during this session, we will double-click on a couple of things that Oleg have mentioned. First, we're going to talk about this big problem that marketers are facing today. Then, we're going to talk about how we solve this problem with our combination of technology and, of course, newest trends in AI.
So let's first address the elephant in the room. If you've ever done marketing, you know that over the last twenty years, it became harder and harder, and one of the big reasons is that we live in a world with finite attention. But as you know, the amount of content that people see online is exploding. People spend, on average, about six and a half hours a day scrolling content online, and during this six and a half hours, they're bombarded with tons of different content from all possible sources. And if you're a marketer and you're trying to compete for people's attention, you have to be better, and you have to create more relevant content than everything else out there for this particular customer.
So you're competing effectively with over 1 billion of Facebook stories, millions of blog posts published just on WordPress alone, 700,000+ hours of video content uploaded to YouTube, and over 50 billion ads that are shown on Meta and Google. And this is all this content just in 1 day, on top of volumes of content that were created before that. So it doesn't sound easy, right? You would think it's get better - it gets better, but it actually doesn't, because on top of that, you also have to deal with increasing complexity of digital marketing landscape. 20 years ago, to be visible online, you needed maybe a website, you know, maybe you do a little bit of email marketing, some basic search engine optimization, and that's probably enough for you to get discovered. However, internet have dramatically evolved since then.
First, with platforms like WordPress, everyone became a publisher, and that launched an era of digital media and influencer marketing. Then, of course, social networks arrived, and now businesses need to figure out how to position themselves in those social networks, how to create content that engages with their audience. Then, of course, with the popularity of Google Maps and Yelp, businesses needed to care about online reviews and manage their presence there. Then, with popularity of YouTube, everyone had to do videos, which is a different format. Then iPhone arrived, and now marketers had to manage mobile version of their website and desktop version of their website, and every time they create a piece of content, they need to think where my customers are going to consume that.
That got worse with the popularity of short-form videos on TikTok and Instagram. Now, finally, with an era of AI, marketers need to think: What do I need to do to be visible in ChatGPT or in Google's AI Overview? If you think about average day of a marketing professional, first, I need to optimize my website for search so I can rank at the top of the page, because ranking at the bottom of the page doesn't work anymore. You get clicks only if you rank in one of the snippets or at the very top of the page. You need to think about your social media, then you need to run ads, and, of course, it's harder and harder because ads are getting more and more expensive. You need to manage your social media presence.
You need to engage with your audience. You need to share valuable content. You need to reply to their messages. If you have local business, you need to manage online reviews. You need to be very careful about your reputation. You also need to solicit reviews from your happy customers, and of course, you need to manage your presence on local listings and maps and directories. And then finally, we've talked a lot about content, and you have to create tons of content: text, video, pictures, everything. And while it's easier than ever to create this content, it's harder than ever to create content that actually resonates with your audience. So again, doesn't sound easy.
You would think that software industry would help people with that, but I think the way it developed actually makes it a bit worse, because the way MarTech reacted to all this increasing complexity is by creating over 14,000 different fragmented tools. You have all those small products that solve only one tiny product but don't help you with the bigger problem. And today, if you interview a marketing professional, it's actually very hard to find one who knows how those tools can be connected in a good technology stack for a particular business. And in this fragmentation, what we see is that companies who succeed, they're all platforms like Semrush. So in this super fragmented world, what options people have if they don't have Semrush? So we believe they have two fairly... or three fairly bad options.
Number one, they can use free tools provided by platforms like Google and Facebook. There is nothing wrong with that, but those companies make money primarily by selling ads, so they're going to be a bit biased. Google, for example, is probably not going to tell you to spend more money with Facebook. Facebook is not going to tell you to spend more money with Google. On top of that, like I said, they make money by selling ads, so they're probably not going to tell you to spend more money on organic marketing or creating content. The second option is to work with this 14,000 different MarTech applications, trying to craft your own stack.
But this approach also doesn't work because those products are going to be extremely siloed, so it's very hard to use insights from one channel to drive your strategy in a different channel or to have a cohesive strategy altogether. And then the final option is to employ army of engineers and data scientists to build something that is custom and specifically for your business. And in theory, it could work, but in practice, there are very few companies who can even afford that. And even when they do, those frameworks and those homegrown tools are very hard to maintain, and of course, this is ridiculously expensive for vast majority of businesses. At Semrush, like Oleg said, we're both marketers and technologists, so we saw this problem, you know, a little bit upfront.
We knew, we knew that's happening, and we felt that the best way to address this problem is actually to create one platform where customers can manage their presence in all key channels. To do that, we had to start with data. We needed to know how businesses perform in all those different channels. When it comes to data for a platform like Semrush, you need to go simultaneously very deep and very broad. An example of Semrush going very deep is going to be, for example, our link index, where we have more than forty-three trillion links. That's comparable to link indexes of companies like Google and Bing, who build search engines using them. This allows us to build a sort of GPS of the internet, so where we know how different websites are connected...
So we can help businesses to go from A to B from marketing point of view. We can tell them where to invest money and, kind of, what turns to take during this journey. And then example of us going very broad is our ability to ingest additional data sources from variety of channels, so organic rankings, reviews, brand mentions, social media networks, user behavior data, and the list goes on and on and on. We also use this data to create network effects that act as a moat to protect our business from competition. The way it works, we give a little bit of data and insights for free to generate demand. A lot of people come to, you know, get valuable information that helps them to run their business. As they use more and more features, they start sharing their own data.
As they share their data, we can use it to train our machine learning algorithms and improve quality of our insights and proprietary metrics, such as traffic estimates or search volume estimates. And as our quality of metrics improves, it drives even more demand, reinforcing the cycle where better quality of metrics drives more users, who share more data, which drives higher quality of metrics. Of course, just having data is not enough. Marketing is not just data. So to help marketers solve their day-to-day problems, we've built this interconnected AI-powered hubs for all key channels, from search engine optimization to social media management, local marketing, brand marketing, content marketing, and paid advertising. And we also realize that you cannot just solve part of the problem. You have to give people entire workflow for each of those hubs.
So inside each hub, we have tools that help people to learn about their market and landscape. For example, our tools like Organic Research or our competitive intelligence tools. Then we have tools that help people to create great content. Our Content Shake AI is a good example, as well as Creative. And then we have tools that help people execute campaigns. Here, you can use Social Media Poster or Semrush Local or Ads Launch Assistant. And then once, you know, your campaign is done, we have bunch of reporting tools, also powered by AI, that helps people to make sense of what have happened and understand how they need to improve their campaigns in the future, and they can use this knowledge to start a new cycle and run new campaign. And of course, like Oleg said, you don't have just to trust me.
You can just go and check what people say, what real customers of Semrush say about us online. And if you do that, you'll see that on review websites like G2, Semrush is ranked as a leader in 20 different software categories. And while there are point solutions that have been okay for certain areas of marketing, there is no other company in the world that have managed to be so good in so many different areas of online visibility management. No conversation today will be complete, of course, without AI, and this time we decided, instead of me talking about AI, just to show you videos of how our customers can use it to grow their business.
One thing that I wanted to share with you about AI is that during last couple of years, we've learned that AI is really only as good as the data that you give it. And of course, we've talked about Semrush having this unique data asset, and what we found is that by combining our unique data with AI, we actually help customers to achieve great results. And you can see it from our products, such as Content Shake AI, and our, you know, personalized keyword metrics, and so on. Another thing that I believe is very important when it comes to AI is how do you make money? A lot of companies these days have AI features but don't make that much money out of them. So we, from the very beginning, developed three pillars of AI monetization.
Number one, there are some features that we include to all core plans, features like Copilot or our AI report summary. Those features are not monetized separately, but it... Of course, they increase conversion, they increase retention, and over time, as you add more and more of them, you can also increase prices for all customers to capture the value that you have created. Another way to monetize AI is to use it as an upgrade, upgrade trigger, you know, in certain tiers. For example, our local product has a reply to review feature, but this feature is available only on the higher tier. So a lot of people upgrade from entry level to higher tier to get to get access to this feature.
And then finally, some features are so robust that you can monetize them as is, as a standalone SKU, and that's what we've done with products such as Content Shake AI, Ad Creative, and Social Content AI. Now, I'd like to show you this video about all our AI capabilities, and I hope you enjoy watching it even more than we have enjoyed building them. Thank you.
Semrush is at the forefront of AI innovation and digital marketing, offering cutting-edge tools that transform SEO, content creation, social media, and local marketing strategies. These AI-powered features are driving real revenue growth, and as we deliver more value to our customers, we have the ability to raise prices over time. For SEO, all Semrush clients have Copilot, an AI assistant that analyzes billions of data points to create personalized plans that boost traffic and revenue. It recommends crucial domain changes, new keywords, as well as additional Semrush tools for the user. In local marketing, our AI suggests auto-replies to customer reviews in multiple languages, streamlining reputation management and online visibility. Content Shake AI revolutionizes content creation, powered by Semrush's proprietary data, offering trending content ideas, unlimited SEO-ready articles, AI-generated images, and social media posts. It streamlines the entire process from ideation to publication.
And with Semrush Enterprise, we're using AI to redefine enterprise SEO and revolutionize the way SEO professionals work. Ranking reports and forecasts are done in minutes, not days, with the help of AI-driven analysis. Clients can run multiple AI workflows in parallel, from internal linking to content analysis and creation, completing routine data tasks up to ten times faster. Semrush Enterprise utilizes proprietary technology and workflows powered by AI to elevate customer strategy, reduce manual workload, and stay ahead of the competition, all in record time. We're not adopting AI. We're leading with it. These innovations allow us to capture more value across all customer segments. With Semrush, businesses of all sizes can now compete at the highest level. Let's turn data into insights, creativity into content, and AI into revenue with Semrush.
All right, we're gonna pause for our first Q&A session. So we'll have a couple of microphones coming out. We're gonna have Oleg and Eugene join us, and we'll answer a few of your questions.
First question.
Thank you. Jackson Ader at KeyBank Capital Markets. Thanks for doing this, guys. First one on search: so if we think about... You know, Oleg, you talked about increasing complexity, and Eugene, you've talked about AI and some of the different ways that things have changed just in the last couple of years. If search volumes were to drop dramatically in the coming years, what would that do to your business?
Take that?
Yeah. So first of all, I think we have to address the elephant in the room. So far, they always have been increasing, right? So and I think there is no reason to think they would drop. I think search engines have done tremendous job increasing total number of use cases, you know, things that you can do with search. And today, I think it's even unfair to call search a search because you do so many more things than just finding information there. And then with Google's AI Overview, again, I think goes through one more transformation, where number of use cases increases exponentially, as those features get better and better and better. That said, if the pie got a little bit smaller, that would mean the fight for those eyeballs, for those views, gets even more intense.
And when commodity gets even more scarce, you would expect that people, you know, deploy even more resources to get their share of the pie, and it all continues until organic search is the best ROI, right? Which, today, there is a lot of room for this to grow. I think today a lot of people spend a lot of money on paid advertising. It's a huge market. You can see this from, you know, just revenue numbers published by Meta, Google, and so on. And amount of money that goes into organic search is still very small, and ROI is fantastic. So if something happened and competition got even tougher, we think it drives probably even more money into organic search until it reaches the point of ROI parity, which I just don't see happening anytime soon, because right now there is such a discrepancy.
If you look what Semrush is doing with our own dollars and where we spend them, we're spending an increasing amount of money on organic search because this is the best ROI for us. And it doesn't mean we don't spend anything on, you know, paid marketing. We spend their money as well, but the ROI on organic search is really way, way better for majority of businesses.
Right here.
Hey, this is Arti Vula from JP Morgan. Thanks for taking the question, and great presentation so far. You showed a very cool chart, kind of showing the evolution of your business, you know, starting from search, video, and in there you had ChatGPT and Google AI Overview. I'm sure we've all seen it. I know I have. So could you describe how much this comes up in conversations with customers? Is this kind of a feature that's cool, but it's in the back of their mind, or are customers anxious or maybe even excited about it? How much of an impact is it having right now, and is that what you kind of see as the next step in the SEO field?
Yeah, great question. We're very proud to be one of the first companies who actually introduced an ability to monitor your brand's presence in those AI Overviews. So I believe we're ahead of the curve there, and of course, a lot of customers use our software to understand what it takes to be mentioned, or featured, or rank in those AI overviews. So far have been very encouraging. Customers are very grateful for those innovative features that we add to our products, and they find a lot of value, and we're proud to help them to understand how to be featured there and be more visible. Hope that answers the question.
Hi, Elizabeth Porter from Morgan Stanley. So you gave the slide on three different pillars for monetization of AI across the products. So I wanted to better understand, within kind of the product standpoint, what are some of the characteristics that would put a product on one under one pillar versus another? Is there an opportunity for that to shift over time, kind of starting as a all-in-one and then move towards a price separately? Just how you think about that from a product standpoint.
Yeah, absolutely. We actually do this from time to time. Sometimes feature starts as a part of the broader bundle or one SKU, and then we spend maybe two, three years adding features, and at some point it becomes so robust that we say: "Well, we think this will actually do great on its own." I think the most interesting example recently is social media features, that, you know, when I joined the company, about nine years ago, social media was just part of our pro subscription, and now it's monetized separately, and it's actually, you know, driving a lot of growth.
Then maybe to add one thing to that. We have 116,000 paying customers. You'll see that's tripled since 2018, so we are focused on democratizing marketing for small business owners, generalists, and the most sophisticated marketers out there. So part of our growth strategy is acquire more companies and businesses to use our platform, so we're always looking at what features are going to create that environment to allow them to convert and be inspired by our platform. Our average ARR per paying customer, you'll see in a few slides, it's doubled since 2018. So we're always looking at opportunities to expand our footprint inside companies.
There's a lot of different factors around what is it gonna take to convert, and then how can we expand and actually increase the value that we have within those existing companies?
Let's do one more.
Okay. Yep. We'll have two more Q&As, so don't worry about it.
Great! Adam Hotchkiss, Goldman Sachs. Thanks so much for taking the time. On the AI strategy and your AI products, how did you, from an R&D perspective, go through the process of differentiating what you can value versus more commoditized tools like ChatGPT? And when you have conversations with customers around that differentiation, how does that resonate?
Yeah, I can take this one, so the key is to add value. There was a short slide about this, no pictures, but the key is to add value, and for us, what we bring to the table is unique combination of data assets that no other company has, so we use this sort of map of the internet to understand how marketers need to get from A to B, and then we feed this into AI algorithms and let them, for example, create content that follows instructions that we outlined using our data, so in Content Shake, for example, we use our data to create effectively an equivalent of prompt, and sometimes the instructions are so deep that the size of this prompt is actually greater than the output.
It's unfeasible for a human being to actually do that because you'll spend more time writing the prompt than writing the content. Of course, for us, because we can use data and automation, it's totally feasible. I think that's a key to AI monetization. You need to bring something to the table. You need to create additional value that those large language models don't have without you, and that's how we do that with respect to every single AI feature that we build.
All right, we'll have two more Q&As, one more time after Tommy and Andrew, and then at the end. So plenty of time to go through more questions. So please join me in welcoming Andrew Warden, our Chief Marketing Officer.
Thank you.
Thank you. Thank you. Thank you very much. Make sure I'm miked up. Perfect. Thank you very much. Thank you again for being here, today. We're very excited to have you. So today, as a CMO, I am very excited to talk to you, about our exciting evolution and natural progression to Semrush Enterprise. We have listened to our customers, they've led our growth, and we're pleased to share this exciting development, and the next stage of our growth journey. So let's start with the key takeaways for this session. The cost of customer acquisition continues to rise, particularly for SaaS companies, but for all companies. Organic channels remain the most cost-effective means for virtually any company anywhere. Number two, at the same time, SEO has historically been a very labor-intensive, business.
Based on our estimates and our customer observations, SEOs today spend about 90% of their time analyzing complex data sets from distributed systems to piece together what's happened anytime they've seen a change in traffic or rankings, and that's really whenever Google or any other search engines change their algorithms, which is very often. And third, we are reimagining how SEOs and digital marketers go about their work. We aren't only putting them back in the driver's seat, we are putting them into a rocket ship, cockpit of a rocket ship for growth. Speaking about the customer pain points, the rise of AI and a virtual flood of pervasive content across the web, as well as constant changes in search algorithms, has really made the job of an SEO incredibly complex in the last 18 months.
That problem only escalates as AI continues to take further hold with marketers globally. There is also a lack of time and resources available. There are too many point solutions that don't solve the problem, and an overall inability for marketers to make data-driven decisions. Right now, our customers tell us that they spend approximately 90% of their time performing regression analyses, stitching together scores of data sets from fragmented, distributed, and disconnected systems in order to figure out what to do to fix traffic and revenue losses. This leaves about 10% of time left to actually fix the problem. 90% of the time is figuring out what went wrong, 10% is figuring out what to do about it.
With Semrush Enterprise, we believe we can deliver 10x productivity and efficiency for marketers, so they can prioritize their time restoring or growing traffic in a fraction of time. And of course, if they can do that faster, they can get back to the business of driving revenue faster, which is what we want from all marketers. So let's dive a little bit deeper into how SEOs solve their problems today, but without Enterprise. So when Google or other search engines make changes to their algorithms, SEOs first collect their data from dozens of disparate systems. They migrate and cleanse this data, so it's easier to interpret, and then they filter and format. These steps alone take three days, three full days to perform. Next, they clean up, they dedupe, they remove outliers, they apply all kinds of rules to identify patterns and what may have changed.
And then they report their findings to their bosses, like me, only to be asked to do it all over again when I've given a couple of questions and said: "Well, have you figured out? Have you thought about the problem this way?" It's really annoying for SEOs, but I have questions. It's normal. End-to-end, this process takes about seven days to complete, and nothing's actually changed yet. There's not even a hope of a change yet. But with Enterprise, SEOs can perform all of these tasks in as little as thirty minutes. This is what I mean about a revolution for SEOs and digital marketers. And I wanna connect this back to what Eugene shared earlier. I love the title of this slide, Three Bad Options. It's fantastic. So, here we have concrete examples of bad and convoluted tech stacks.
The integration of multiple fragmented systems that require really a small army of developers if you've got the cash to do it. SEOs use dozens and dozens of tools daily to triangulate the data they need in order to make decisions, from position tracking, to research, to reporting, to content development, and all of these additional tools. SEOs are still deploying complicated and disconnected tech stacks that not only create headaches for themselves, but they also create hundreds of hours for others across enterprise companies like procurement, legal, accounting teams. This is a problem for large companies. These cobbled-together solutions can cost just the licensing fees alone of about $300,000 and above, which is a material figure for any marketing department. Doesn't matter how big your company is.
And when taken into a total view, we estimate that it costs organizations more than $1 million when productivity is factored in across all the different departments. And what's more even is that we hear this a lot from our customers, that these stitched-together solutions don't actually solve SEO's problems. Marketers still end up building their own internal tools to get what they need. And I know this firsthand because my organic search team was building their own tools on top of what they thought they needed. So the problem is very real, until they got Enterprise. So these complicated webs of tech stacks and hacks are inefficient and problematic for so many reasons. This is where we believe Enterprise shines. We have a clear opportunity to displace all of this fragmentation.
Our new platform solves virtually all of these customer needs and pain points in a single, unified system. Beyond the tech stack, and the time savings, we also see foundational value that we're offering to SEOs. As Oleg and Eugene said, we've had a network effect from the 16 years of collecting data from our users, so there's value in the aggregated data and intelligence platform that is only available with Semrush. And there's value in the aggregation of that data, the ability to interpret the data in record time, as well as the ability to take action the same business day versus weeks. And overall, the true value is that we're providing, for SEOs and their teams, they can create greater traffic outcomes, which equal more revenue, faster for companies, and even better when it comes to recovery. Here's a high-level example of an...
of our AI-enabled workflows that SEOs benefit from Enterprise, and this is just with what we launched in May. From SEO forensics to content analysis, to page speed insights and forecasting, Semrush Enterprise helps solve the exact problems that Enterprise SEOs face each and every day. With our solution, they can quickly identify what has happened, then forecast the impact of the changes they should make. They can analyze the content, and then they can identify what needs to be changed. Then they can A/B test it to bring it to production, all on the same platform, all with the same data, and all on the same PO. We don't have time to drill into, to all eight or nine of these, but I do wanna spend time on four. We'll look at forecasting, A/B testing, content, and expert services.
So one of the standout features, especially again, as a CMO, from my side, is our precise forecasting workflow. As you heard earlier, the cost of CPC will only continue to rise. It becomes more and more important for SEOs to prove that the work they're driving can provide a counterpoint to that, right? It's about the balance of channels of acquisition and certainly about the cost of acquisition. In just a few clicks, SEOs can accurately quantify the impact of different SEO projects on traffic and revenue. With customizable settings for position, click-through rate, and revenue, it's easier than ever to align forecasts with business goals, ensuring they're both accurate and relevant.... This is a true game changer for SEO planning and prioritization. Again, it puts control over budget and efficiency directly in the hands of SEOs at any business level or product level.
What once took hours of manual planning can now be done in just minutes, which more than doubles the team's efficiency and focus. Next, let's talk about our AI-powered content workflows, which are transforming the way that content is created, analyzed, optimized, and managed. Creating content used to take weeks. I know it for sure. I know the cost of creating content. With the help of AI, creating content now, no matter how many markets, languages, or teams are involved, takes a fraction of the time. Content teams receive detailed briefs and a clear, intuitive interface, which allows copywriters to assess SEO quality in real time, not over several days, in real time, and generate new content ideas on the fly. Of course, this all leads to generating more traffic.
With SEO A/B analysis, companies can create precise targets, between different groups of page segments, tags across a wide range of metrics, and this is all underpinned by the extensive data sets from Google Search Console as well as Semrush. This process is streamlined and efficient, so the results are automatically summarized and visualized for SEOs. This gives clear insights for smarter, data-driven, and faster decisions. But for me, it's... This isn't just about running tests. A/B tests can be quite reductive. This is about unlocking a world of growth opportunities again and doing it faster than ever before and getting the result, faster than ever before.
So with the ability to test and refine strategies in this real-time mode, customers can quickly identify what works and what doesn't, which drives continuous improvement in marketing workflow, and that's really what every marketer wants to be--wants to do, is to continuously improve. And finally, our Expert Network, which is one of my particular favorites. Expert Network is interesting. Even with the best talent and the best tools, the sharpest marketing team you can find, they sometimes get stuck in their habits. They sometimes get stuck in their ways. They sometimes lack the level of criticality. Maybe they're too close to their ideas. Maybe they ignore some of the data unknowingly, and this is where Expert Network comes in.
So whether our customers need inspiration or ideation, specialized training, or developing a comprehensive SEO strategy, with a simple click of a button, our customers can post their ask from a network and be connected to a shortlist of global pre-selected and vetted experts who are available to help them. The best part is there's no lengthy back-and-forth, contract and negotiation, no problems with availability or statements of work, all of this, no hassle with finance, legal, shout out to finance and legal, or other supporting functions. So each Enterprise customer begins with credits that are automatically built into their contract, making it effortless for them to access this outside help when needed.
So we not only make it easy for them, for our customers, to access outside help, we also make it easy for them to up their credits and spend more, in that process. In all seriousness, though, Expert Network for me really hits home with, no matter how many times you might have run into a top SEO or a top digital marketer globally at a conference somewhere, there's a big difference between being connected to someone on LinkedIn or having their phone number to text them. It's impossible to get these people, their attention and their time. So this is where there's, again, a very distinct, and exclusive value add, for Semrush. So our customers truly value this offering, and I would love to share what they have to say.
So we have a couple of videos from Square, Picsart, and then we have a video from one of the experts in the network, Kevin Indig, who is in the top ten of SEOs globally. Enjoy.
Hi there. My name is Sean Carey, and I'm the global head of organic discovery at Square, a leading financial tech company. We've been using Semrush Enterprise since March 2024, and it's been critical for our business. Since we started using Enterprise, we've outperformed our competitors on both traffic and content, and we've improved our rankings in virtually all markets. Our team is primarily charged with closely monitoring our keyword performance in the nine countries we serve in.
With Enterprise's Share of Voice feature, we create detailed segments and tags across our campaigns, understand our market share in real time, and most importantly, get a cheat sheet on how to up our digital marketing game. Until Semrush Enterprise, we simply never had access to immediate data like estimated traffic, position changes, and other important recommendations for keywords to compete for or that are underused by our competition.
Rather than spend several months of manually crawling and painstaking guesswork trying to recover from a traffic loss, we now know, thanks to the What Has Happened tool, in seconds what changes Google has made and the steps to course correct. Semrush's content optimization tool has been incredibly helpful for our team. We're able to see and quickly action improvements for our content, like interlinking, topic variety, and blog post length, so that we continue to increase our search rankings across our entire domain. Bottom line, in just a few months, we've seen a 30% increase in organic search traffic and a 25% improvement in our keyword rankings globally. We're working at least 10 times more productively than ever before and saving 12 hours per week. Semrush Enterprise is by far the most advanced solution on the market.
The way they use AI in each workflow is brilliant, and we're happy we were able to incorporate it into our daily operations so early on.
One more.
Hey, my name is Niels Caspers, and I lead web growth at Pixart, the world's largest digital creative platform. We were one of the first customers to use Semrush's Enterprise SEO platform, and it's completely revolutionized how we show up in the search results, increase traffic, and manage our SEO operations. With skyrocketing demand and high user expectations, our team was overwhelmed by the time-consuming task of manual link optimization of hundreds of pages regularly. This inefficiency not only wasted valuable resources, but also hindered our ability to scale and meet the growing needs of our customers. Once we started using Semrush Enterprise Link Recommender, we moved faster than we thought was possible. The AI-driven audit and implementation took less than a week, whereas if we'd done it manually, it would have taken us several months.
Semrush Enterprise team recommended the best way to interlink our content across our entire domain and provide an API to automate this integration. The implementation across 300 pages included more than 50,000 contextual links, and it was done within a week, a process previously conducted manually at around 30 minutes per page. In just a few days, we increased our organic traffic by 20% in comparison to pages that had not been linked. And as a direct result, we saw a 124% growth in visibility of the updated pages.
Hi, I'm Kevin Indig. Humbly speaking, I'm regularly cited as one of the top SEOs in the world, and I can hand on heart say that Semrush Enterprise SEO platform is an absolute game changer in my field. Many people know that Semrush has led the way in the digital marketing industry with over 25 billion keywords and 43 trillion backlinks, but what they don't know is that they've built an entirely new platform for large companies. It's been designed for enterprises with complex needs, those that have multiple entities, operate in multiple markets, and have tens of thousands of web pages, and it's incredibly valuable for those I advise and those around me. One of the biggest innovations with Semrush Enterprise is the ability for an SEO to spend more time executing versus analyzing data.
In my experience, when Google makes an update, it takes two weeks minimum for SEOs to figure out what happens through deep manual analysis before they even begin to execute changes to recover traffic. Through Semrush's AI-driven workflow, SEOs can root cause in as little as thirty minutes and focus on recovering traffic faster than ever before. With this platform, SEOs can execute changes faster and get back to delivering revenue. But sometimes, even with the best technology, digital marketers need support from outside experts. These trusted experts, like me, are hard to find. With the Semrush Expert Network, accessible through a click on the platform, businesses can seek help from world-renowned SEO talent, eradicating the need for lengthy contract processes, sourcing skills, hiring, and onboarding. Within moments, Semrush will match a task to a highly qualified expert, saving companies up to twelve weeks of time.
Semrush Enterprise platform is a must-have for enterprises who want to stay ahead of their peers, and whenever they require expertise from the world's best, they can simply ask Semrush.
Okay, thank you so much. That's the close for the Enterprise SEO solution component. Brian, I think we have some break now. How many minutes?
Fifteen minutes. Fifteen-minute break, so 3:17, approximately.
Thank you so much.
Thank you.
Okay, for those who are still outside enjoying coffee, maybe I can lure you back into the room. Perhaps not, but let's see. Okay, welcome back. Let's catch us up just after the break. So we've covered our track record of success, as well as our vision for future growth. We've also shared our product portfolio and the complex problems we're solving for our customers. And you've just seen how powerful our products can be and the impact they can have on our customers. So now we want to talk through our go-to-market strategy.
I'll begin this section and then invite our CSO, chief sales officer, and my friend Tommy, to the stage in just a few moments. Look, earlier, Oleg talked about our history, that we started out with a single product focus on search engine optimization. With consistent innovation to keep up with the increasing demands and the sophistication of our customers, we now have a marketing platform that's focused on the most important digital channels beyond search engine optimization. Eugene talked about the evolving digital marketing landscape and specifically how it went from that single, relatively straightforward channel to a much more complex multi-channel endeavor. Over the years, Semrush has encountered another evolution, the evolution of our buyer and target market, along with the go-to-market strategy that we need to engage with each segment.
We'll begin by discussing the target market, our efficient product-led growth, and then we'll move into the sales-led growth and expanded opportunity for the enterprise. Let's start by talking about the evolution of our buyer and target market. Again, when we started our journey back in 2008, as you know, we had a single product focus on search engine optimization. Our target buyers were SEO specialists. We offered a highly specialized tool with advanced technology that directly catered to their needs. Over time, we've extended our portfolio to other marketing channels tailored to the needs of specialists and other marketing disciplines, like local or social media or brand marketing, content marketing, and even intelligence. Then we progressed with marketing generalists and business owners per our original goal to democratize marketing.
Remember, anyone can be a marketer, and any business can make it with Semrush. And as our influence increased within marketing teams, we opened the door to marketing leadership, who are interested in making smarter, data-driven decisions, optimizing their marketing spend, and of course, measuring the results. And sometimes I might not think it's a good thing, but even our CFO, Brian, uses Semrush, and believe me, he uses... I know he uses it 'cause he holds me accountable weekly, and notices all kinds of activities within our own channels, which is fantastic. So through the years, we simplified the product and built-in Copilot AI capabilities to further extend the reach to business owners, solopreneurs, marketing generalists as well, that don't necessarily have highly specialized training in any particular marketing discipline.
As you would expect, the needs, the customer acquisition costs, the lifetime value potential, and strategies to engage these different buyers in different segments have changed. I wanna, for simplicity, group our go-to-market motions into three different phases here. First, our product-led motion focuses really on automation and volume. This is the automated one-to-many approach with standard pricing and self-guided purchase paths. This is higher volume and lower value. Next, we have our sales-assisted motion, where sales augments the product-led motion to target mid-market customers who are ripe for expansion on a one-on-one basis. These are clients who exhibit behaviors that they're ready to spend more with us and get more value out of Semrush. This is higher volume and lower value as well. Finally, we have our sales-led motion.
This creates a personalized one-to-one experience for our most sophisticated clients. This is where sales drives the purchase experience, negotiates contracts, and really provides a white glove experience, and this is higher value and lower volume. While each motion is different, they enable a huge opportunity for Semrush, with a large addressable market and efficient LTV to CAC ratios across all three. So let's go a little bit deeper into the product-led motion. So how we do it? This slide should look familiar. It's. Yes, it is a test. It should look familiar. Oleg shared these same strategies earlier about why businesses and marketers need Semrush. And guess what? We are our own customer. Like we said, marketers and technologists. In order for Semrush to establish its product-led motion, we also have to embrace ways to create brand awareness online.
We have to employ strategies to be visible, and in fact, we generate over 400 million visits to our website with an average duration of nine minutes in the last 12 months alone. We are also present and relevant in conversations on social media. So we manage our reputation, we ensure our consumers and the media perception remains favorable. Again, as you saw in a couple of references to G2 awards and customer reviews, this is all by design. It doesn't just happen. It requires a lot of work. And we've built up a lot of brand equity, engaged with millions of professionals over the years, and I believe we benefit, and this is my personal belief, that we benefit from a cult-like status among marketers globally.
And of course, we focus on high-quality content that resonates with our target customers across all available channels. And our top-of-the-funnel marketing extends beyond just creating content to attract customers. Like we said, we believe that anyone can be a marketer, any business can make it with Semrush, and that's not just about education, it's about inspiration. Our goals are to inspire the next generation of digital marketers. Did you know that we have over 130 accredited universities, like Columbia Business School, right here in New York, participating in the Semrush for Education program? We are part of a core curriculum, so more and more students who study business and management, they first learn about Semrush before they graduate.
They use the tool, so this increases their likelihood that they will use Semrush at their first job or when they start a new business. And I was just actually at Harvard Business School last week with a bunch of students who are looking to start their own business, and guess what? They're already using Semrush. We also offer digital marketing training through Semrush Academy, with over two hundred hours of content across twenty topic areas, with forty practicing experts providing live Q&A and webinars. They also issue templates, tools, and process documents to get marketers started no matter where they are in their journey. We also leverage the media, and other scalable ways to reach new audiences. You'll see here, a feature with Barbara Corcoran right here in New York.
We had an activation in March to help small businesses grow, and the event was so successful, we actually managed to get on the Today Show, which, if anyone has ever tried to get on the Today Show, is virtually impossible without paying for the space, which we did not. And finally, our core product features an AI-powered Copilot, which you heard before. This focuses on the pain points of business owners and marketers, and this helps accelerate their experience and the usage of our platform to drive real results for their business. This Copilot feature also makes recommendations to users based on their activity, on what can enhance their experience and what, how they can get more out of Semrush.
But beyond generating awareness and education, when we look at the product-led motion stages, a funnel, if you will, this is about registering awareness and education. This is about registration, trial, conversion to paid with rapid time to value, and of course, upgrading and support. We have hundreds of programs firing across this funnel at all times. After we acquire customers, we have a whole range of programs that are designed to expand average checks with relevant and new products to attach and dedicated programs overall to improve our customers' journeys, in an increasingly automated way. Our product-led motion is efficient and effective, enabling us to increase our paying customer base by nearly 3x and our average ARR by nearly 2x since 2018.
That efficiency has expanded significantly over the past few years as we've continued to invest in AI, as well as automation and the web assets that not only create awareness, but also educate our customers in a way that supports our self-guided sales cycle. It is because of this efficiency that we've been able to simultaneously invest in the sales-led motion, which Tommy will talk about in a moment, without increasing our sales and marketing Efficiency. Speaking of Tommy, now I'd love to hand it over to him to go deeper into the sales-led motion and the expanded opportunities in the enterprise space. Thank you so much.
All right. Thank you, Andrew. I'm excited to be here to walk you all through our sales-led go-to-market strategy, the investments we've made, and the incredible opportunity ahead of us. In this presentation, I want to cover four key points. First, our strong foundation and proven success with our sales-led go-to-market strategy. Second, the massive untapped potential within our existing customer base. Next, I want to walk you through the increasing demand for our enterprise solutions, with several global leading brands already selecting Semrush as their platform of choice, and in many cases, displacing competitors along the way. Last, but most importantly, our readiness to execute with the right people, processes, and technology in place to make sure that we capitalize on the opportunity ahead. All right, without further ado, let's dive in.
Before we run into the numbers, I want to walk you through our sales-led motion and how it differs to what Andrew just presented. As Andrew mentioned, the customer acquisition costs, average potential lifetime value, the customer needs, and the engagement strategies, they all vary across each buyer segment. For our more sophisticated accounts, we deliver a one-on-one personalized experience, positioning ourselves as trusted advisors and strategic partners, enabling these businesses to significantly increase their online visibility across major digital channels. Our sales-led motion kicks off with demand generation, as you can see on the top. Like most businesses, we deploy an outbound demand engine, greatly benefit from a really strong brand and web presence, where the majority of our leads come from inbound sources, customer referrals, or cross-sell and upsell opportunities after landing the initial deal.
Once a lead is engaged, we follow a standard B2B sales-led process: discovery to identify pain points, demo, technical overview, negotiations, and close. With years of experience and master subscription agreements already in place with several large enterprises and Fortune 500 companies, we're able to accelerate and streamline cross-sell and upsell opportunities. Let's get into some numbers. Since 2018, and both Andrew and Oleg discussed this earlier, we've seen ARR and average ARR from our most sophisticated accounts grow faster than the rest of the business. While we've successfully doubled average ARR overall since 2018, we've seen enterprise increase by more than 2.6x over that same duration of time. This is a trend we expect to continue and even accelerate. So Brian mentioned something new that we're gonna show today.
Customer spending over $10,000 and $50,000 ARR has significantly increased over that same time period, with meaningful uptick starting this year in 2024. Again, this is just year to date. We just closed Q3 last night. We started to see this from the adoption of our enterprise SEO platform, alongside the continued expansion of our portfolio. However, it's worth noting that we accomplished most of this today without a product specifically tailored towards large enterprises. Now, with our enterprise SEO platform in place and plans to extend enterprise readiness across the remainder of our platforms, we see significant opportunity to increase average ARR meaningfully higher. Right now, we estimate the ARR range for our new enterprise SEO product to be around $40,000-$60,000.
As Prove pointed out, we've seen early adopters increase their average ARR 5X, going from $12,000 to $60,000, with some of our largest enterprise SEO customers spending well into the hundreds of thousands of dollars. All right, let's go into the enterprise opportunity itself. So I wanna walk you through three key opportunities that are going to set us up for continued success. Let's start with our installed base. We've got a really strong foundation here, a loyal customer group, and in many ways, a stock pond, if you will. We're fortunate that we serve over 8,000 enterprise customers today, over 17,000 sophisticated mid-market customers, and over 21,000 agencies. They're all leveraging Semrush as their platform of choice for growing their online visibility.
This success underscores our position as trusted market leaders, with several customers already upgrading to our enterprise SEO platform, again, in many cases, displacing competitors along the way. These wins demonstrate to us as a business that this platform doesn't only meet, but it exceeds the needs of our customers, and we see significant upgrade potential within that large install base. So let's double-click on competitive displacement. Both Eugene and Andrew highlighted this in their presentations, but the digital marketing landscape, it's more complex than ever before. So many businesses out there are solely reliant on fragmented single-point tools or in-house custom solutions that require large and costly engineering and data scientist teams to maintain. As you can imagine, it significantly increases costs and slows down progress. We are positioned to disrupt this. With our comprehensive all-in-one platform, we're able to consolidate these scattered tools into a single, streamlined solution.
This creates tremendous opportunity to displace competitors, accelerate growth, and create that wow experience that the market demands. By simplifying processes, automating key tasks, and reducing costs, we become the clear platform of choice for any business looking to greatly enhance the effectiveness of their online channels and digital marketing efforts. Lastly, we're gonna talk about whitespace. You heard Oleg, our founder and CEO, discuss the market opportunity. It's nearly tripled since the IPO. Over tripled, sorry, and this reflects both the rapid growth in digital marketing, alongside the strong demand for sophisticated solutions. As the digital marketing landscape continues to evolve, customers and large businesses are facing new challenges, what we call whitespace opportunities, unclaimed areas where advanced intelligence and technology are absolutely essential for businesses looking to stay ahead of the curve. With our new enterprise SEO product-...
And ongoing investments in enterprise readiness across the rest of our key channels, we are perfectly positioned to capture this white space opportunity. This expanding TAM not only allows us to gain share in a fragmented market, but it also positions us to lead in these new untapped areas. Beyond our current customer base, there's still tens of thousands of agencies, mid-market customers, and large enterprises that perfectly align with our ideal customer profile. These greenfields rEfficiencyesent massive growth potential, and we are fully prepared to capitalize on them. So in summary, we've got a really strong installed base. Again, eight thousand enterprises, seventeen thousand mid-market customers, and over twenty-one thousand agencies. We've already demonstrated that we can displace competitors, and we're fully prepared to capitalize on the white space opportunity ahead.
Semrush is positioned to unlock significant growth and further establish itself as a leader in the digital marketing space. Okay, we spoke a lot about enterprise. I wanna now shift so you can take a look at some of the market-leading brands that have already selected us as their platform of choice, so in just five months since going live with general availability, we've been able to secure major partnerships and deals with the likes of Salesforce, HSBC, Temu, Alibaba, and Gartner. The likes of DoorDash, Alibaba, Gartner, and Salesforce were existing customers who made significant upgrades, while the likes of Temu, Samsung, and LG were significant new business wins, and in many cases, with those deals, we displaced competitors. This strong demand from our existing and new clients, achieved with minimal marketing spend, gives us immense confidence as we look to accelerate growth.
But this is just a flavor of what we've done so far with our enterprise product. Let's look at that really strong installed base of 8,000 customers today. So here's just a glimpse of just a few of the 8,000 enterprise customers that we serve today. These brands heavily rely on digital channels to stand out, to drive repeat customer engagements, and expand into new markets, audiences, and categories. They're all using Semrush as their platform for choice for online visibility. Our existing customer base rEfficiencyesents a significant opportunity for growth, much like a stock pond filled with significant upgrade potential. So the customers are there. Now, let's look at some of the strategic investments we've made and continue to make to ensure that we fully capitalize on the opportunity.
So, enterprise. It's been a core pillar for our business that has enabled us, again, to go and successfully partner with 8,000 enterprises and 17,000 mid-market customers. But we believe there's even greater potential out there, and we're making the investments in our sales-led go-to-market strategy to make sure that we capture it. Let's start with demand generation. We're starting from a really strong foundation. These 8,000 customers are already using our core products. We built the product with them in mind, so they rEfficiencyesent a significant upsell opportunity. Later, Brian's gonna walk us through the total addressable market, but there is a much larger, broader global audience out there that we wanna go and take care of. As a marketing-driven company, capturing attention and generating demand, well, it's part of our DNA. Oh, I'm sorry. So talent and winning culture, people.
You know, we've worked around the clock to make sure that our existing teams are ready to make that leap into enterprise with enablement, but we've also gone out and hired over fifty top-tier professionals from the likes of Salesforce, AWS, Amazon, and Cisco to make sure that we've got the right talent, expertise, and culture in place across sales, marketing, customer success, and operations to capitalize on the opportunity. Next is our advanced selling process. Brian spoke about this. Sorry, Oleg spoke about this a little bit earlier, but we've transitioned from a transactional sell to becoming strategic partners with these large businesses, making sure that they're able to stand out amongst the crowd. To support this, we've implemented enablement tools and sales methodologies to empower our teams to drive success, and again, create that wow experience for our customers. Systems and processes.
To support all of this, we've implemented key systems and processes such as Salesforce, Deal Desk, CPQ, and Quote-to-Cash. This allows us to streamline deal management and maximize efficiency throughout. And lastly, incentives and metrics. We've aligned our metrics to focus on the right business outcomes. Two examples of this is shifting from gross quotas, ARR, to net new ARR, and then secondly, just paying much more on larger, longer-term commitments. Before we move into Q&A, and I pass you over to Brian, who's gonna walk us through our financial strategy. As you leave here today, I want you to leave with four key points. First of all, we have a massive install base. There is an incredible opportunity ahead for us there. We've got a strong foundation and proven success already with our sales-led motion. We're seeing increasing demand for our suite of enterprise solutions.
We've already secured major milestone wins with some of the largest enterprises out there, again, in many cases, displacing competitors along the way. And last, but most importantly, we're ready to execute. We've got the right people, processes, and technology in place to fully capitalize on the opportunity ahead. Okay, we're gonna go into some Q&A, and then we're going to pass it over to Brian.
All right. Nice job, bud. All right, we're going to open up again for some Q&A here. Jackson again. Here we go.
Hi, Sonak from JP Morgan. Thank you for taking the question and hosting us today. I just wanted to double-click on the AI monetization side and this comment that there's this opportunity to raise prices over time due to the added value that customers are seeing from these tools. Just curious, how have those customer conversations progressed in terms of their willingness to pay more? Is there some type of analysis that you've done that customers are willing to pay an X% price uplift to Semrush for these tools versus how much they're willing to pay for competitor tools? Thank you.
I'll take this question. So, so what we described is really more on a self-service side, where the best way to know if you can or cannot increase the prices is actually to try and see if it impacts on the metrics, which we constantly doing. So to the extent it is possible, we just A/B test prices. One more tool in our arsenal is surveys and market research, so sometimes, we run a large-scale survey to test price sensitivity and elasticity of demand. So that also helps you to come up with initial price points, but ultimately, before we do big moves, we usually try to test it to the extent it is feasible.
And then on the enterprise side, it is less scientific, but ultimately, when we have a new feature that we really like, we just ask our sales reps to change their price in white papers and, effectively see if it impacts win rates in any way. And this year, you know, even though we've launched product only in May, we already increased prices on enterprise product once.
Hey, guys, Jackson Ader again at KeyBank. So the existing installed base, the 8,000 enterprise, 21,000 agencies, and I think 17 for mid-market?
Yeah.
Do you expect that the mid-market customers or the agencies to get the same type of value that an enterprise customer would get from the enterprise SKU? And so should we think about the, would you say, the 40 or 60 thousand ARR to also be applicable to those other buckets, or is there a little bit of a nuance difference there? And then I have one follow-up.
Short answer is yes, but go ahead.
Yeah, short answer, yes. If you look at... There are so many businesses out there right now, so I think we declared at the beginning, we look at enterprises, five hundred employees and above. But there are so many organizations out there that are bootstrapped with twenty or thirty employees, but they've got tens of millions of monthly unique visits. They're solely reliant on their website. That rEfficiencyesents a significant opportunity for us to go and support that business. So it's very different. Like, when we think about segmentation, we think about employee count, but we also think about things like monthly unique visits, how much they're spending on PPC, alongside how many offline stores do they have. So we bring this all together, we're able to build a really strong ICP.
There's no particular reason why that 40-60 thousand wouldn't also apply to, like, the agency bucket. Is that, like, the ARR? Okay.
Exactly right.
And then on the change in incentives-
Mm.
- for sales incentives, the net new ARR versus gross, and then-
Yeah
... paying more for larger deals, is that, like, literally the commission percentage is larger for larger deals? Or-
Yeah.
How are the incentives actually working?
Yeah, that's exactly it. So we look at deal size, but also the term as well. So we're paying more for larger deals and deals that are secured on two, three, four-year terms.
All right, Adam. Oh, over here.
Hello, this is Rebecca Zamsky with Jefferies. How has your customer acquisition costs averaged with the new, more enterprise-focused sales motion since last year, and what is the payback period at this point?
I can take that. So of course, they're higher. So we have an enterprise sales organization. As Tommy pointed out, we work through our demand generation, and it works through a standard sales cycle. There's negotiation. So the time frame we expect is about three to six months to work through a sales cycle like that, versus building awareness, having a customer engage with a trial, and then registering, which is a much quicker process. So customer acquisition costs are higher, but we actually have an opportunity to expand the returns on those investments by quite a bit more. So our internal product-led growth motion, we target about a six-month payback on our customer acquisition costs and an overall five X return. It's much more significant than that for our enterprise.
Adam Hotchkiss, Goldman Sachs. Thanks so much. I know you talked about a couple of customers that have gotten into that hundreds of thousands of ARR range. And when you look at those customers, maybe versus the $12K to $40K to $60K, what are some of the best practices? Is this just, these are larger companies that have more SEO or backlink volume, or is this, you know, they're adopting more modules? Just trying to understand what the characteristics of those, you know, multi-six-figure deals look like and how you get more customers to that level.
... So I think it sounds like two questions. So one is, how does the pricing scale across the technology users volume? Maybe Eugene to cover that. And then in general, what exactly are we displacing that would enable them to spend more than the average customer? So two questions.
Yeah, absolutely. So in terms of pricing, of course, we start with some standard packages, but they're just to provide guidance. Ultimately, when you sell those kind of deals, pricing depends on how they're going to use the product, and we'll look at number of people, volume of data that they're going to consume, and of course, you know, the ROI that we think they will get. So effectively, value selling. In terms of displacing, right? We've said sometimes we displace other tools, but I think the real TAM here is going after those patchworks of internal solutions that they've built, trying to combine fragmented point solutions. And that's where we see our ability to, of course, sell those, you know, six-figure deals, but at the same time, save a lot of money for our customers.
So they go from having to employ army of engineers and data scientists, building God knows what, that is barely usable, to have a really good solution that is also actually saves them money. And especially this year, when a lot of budgets are under pressure, we're seeing tremendous traction with this value proposition.
Okay.
Oh, great. Hi, Pat Walravens from Citizens JMP. Sorry about the pillar. So on the competitors that you're displacing, can you just give us a couple examples and tell us who they are? And then sort of two related things: Who's the competition going to be in the future as you guys keep growing, and why isn't there a Gartner Magic Quadrant for this?
Great question. So we don't necessarily focus on specific names, but some of them were on Andrew's slide. So there is, for example, a company called BrightEdge that we often see. We don't go into those deals trying to specifically displace them, but as we build better solution for the customer, often customers don't need them anymore. So that's, you know, one example. You know, in competitive intelligence space, often we see a company called Similarweb, so that's another area. But again, the way we think about the market, we focus on providing the best value to our customers, and if after they buy Semrush, they don't need something else that they've bought in the past, that's, you know, great for them, but it's not. We're not obsessed with competition, we're obsessed with our customers and their needs.
In terms of future, you know, Oleg said we want to go and do what, you know, in enterprise, the same thing we've done with an SMB segment, so effectively help businesses to manage their online visibility in all key channels. Of course, for enterprise, it might be a, you know, a long journey. We just started with SEO, but that's the level of ambition, and, you know, as we go into those new channels and build enterprise-level channel hubs for, you know, other areas of online visibility, we'll be bumping into other names. But again, I don't think this is extremely, like, naming them is probably not extremely important because that's, that's not what we are after. We're after customer happiness and great ROI for them.
And just in that, in many cases, the competitor is an in-house, custom-built solution, to Eugene's point as well.
Just one final point on your question: Why isn't there a Gartner Magic Quadrant?
Oh.
This is something we're actively. Look, Gartner is a customer of ours. We're fans, it's a fantastic relationship. What I can say is those things take time. Online visibility is a space. We are absolutely leading in this space, but it's in terms of Gartner or the research on their radar, it's something that we continue to have more active dialogue on, so I think, you know, we can't control the timing of that, but it is something we're actively engaged in.
Hi, Rob Morelli here from Needham. Thanks for taking the question. Great to see the ARPU uplift you've seen overall and with the enterprise customers so far. Based on the initial results for the enterprise solution, coupled with the product enhancements you've made through M&A of Ryte and then Brand24, has there been any change to the expected uplift you believe is achievable for your enterprise solution versus the ten x to fifteen x you initially estimated?
So no change to that, and I don't want to steal your thunder, but go ahead and repeat the stat you gave earlier on the initial group of enterprise customers.
Yeah, so we've increased their average check 5x, going from 12 to 60, and that'll only increase with the acquisitions that you mentioned as well.
The 10 to 15, just to... We've said that a few times, but probably better to think about the range. It's $40,000-$60,000 on average. That's 10 to 15 times our average ARR for the company overall, which is about $3,300. For enterprise customers, Tommy put up a slide. You saw the average today is actually bigger, so it's $7,500. And the first group of enterprise accounts, we've been able to 5x, so there's proof points already. And so we're a little bit ahead. Our average is $60,000 today. It's on the high end of the range, but in general, we'll keep saying it's roughly that $40,000-$60,000 average.
Thanks. Alex Captain with Cat Rock Capital. So with the 10-15x uplift that you're getting on the enterprise side and the traction that you're showing on that-
... you have 300 odd customers that are doing over $50,000 a day, that's like $15 million of revenue, roughly. And you can do 24x that to go to 8,000 customers, so that would be $360 million, which would be about doubling your overall revenue if you were to kind of convert enterprise to that $50,000 plus level. So that's like a massive amount of additional growth that you can get from that process. Is there anything else that's going on in the rest of the business that would prevent you guys from starting to demonstrate acceleration as you go through this process of increasing the 300 customers to 8,000 customers that are paying that amount?
That's a fantastic question, and a perfect segue into the finance section. Why don't we get into? I'm gonna answer exactly that.
Okay.
All right.
Do we have ... Well, I don't know. Got a couple minutes, maybe one more question?
I think we can dive. Is any others? We're gonna have another session right after I go, so more than enough opportunity. All right, let's dive in. So I know how important numbers are to all of you in terms of informing your model, so I want to get right into some numbers. And to close it out, you heard from Oleg talking about the pillars of success for Semrush in general. You heard Eugene get into the pillars of our product success, and then Andrew and Tommy talk about our pillars of go-to-market success, and now I want to talk about the pillars of our financial success. To close us out, we'll talk through that, and talk about the financial success that builds our confidence and optimism about our future.
Eugene mentioned this earlier, and Oleg, we're all really pleased about what Semrush has achieved already, but we believe the best is yet to come and in this next section, I want to frame up a few numbers to reinforce the strong foundation and track record of success, including a couple of new disclosures of our business by segment, that I think you'll find incredibly valuable. We'll double-click into the TAM or the market opportunity that Oleg introduced, and show that we've actually been able to triple that number since our IPO and then I'll close it out with an update to the third quarter. We just closed it out last night. I'll give you a brand-new near-term outlook, and then an update to our long-term operating model that shows expanded profitability and durable growth for the company.
Semrush's pillar for success starts with our strong foundation and track record of success. As you've heard throughout the presentation today, we've consistently delivered and innovated at each moment in response to the increasing demands, advancing sophistication, and the ever-evolving digital marketing landscape. And it's because of that innovation that we've been able to consistently deliver growth, profitable growth, and strong performance across a number of key metrics: our revenue, our average ARR per paying customer, our annual recurring revenue, net revenue retention, and a number of our net new customer additions. I wanna dive into each of those. To start, Semrush has delivered consistent annual recurring growth over the years. As Oleg pointed out, over the last six years, we've delivered 36% compound annual growth, and we expect to surpass $400 million in 2024.
We've also enjoyed success in building out a very strong and loyal customer base that's now reached 116,000 as of the end of the second quarter, and that's tripled since 2018. As Oleg mentioned, our customer base is very well diversified. About 50% of our business is outside the United States. We have customers in all major industries, as our product and the value we provide to our customers is important for businesses of all types. We have customers in all market segments, as our marketing platform is simple enough to use for small business owners and marketing generalists, but also sufficiently sophisticated to meet the demands of the enterprise and more sophisticated companies we serve.
Another metric that's been increasing lately is our average ARR per paying customer, and this has been up two times, so we've doubled it since 2018, and there's a few drivers for that. The first is, you heard Oleg talk about the evolution of our platform, from a single product, to a toolkit, to a suite, to now an AI-powered enterprise-grade, comprehensive digital marketing platform that's enabled us to deliver a cross-sell and upsell throughout our customer base, to expand our footprint overall. But there's another reason. We've also been gaining traction and success in more sophisticated accounts, and as those larger customers become an increasingly larger share of our annual recurring revenue and our customer base, that also increases our average ARR per paying customer. We believe that this trend is going to continue, and it's because of the continued innovation that we've been...
and development and delivery of new products to market, the launch of our enterprise SEO products, the advancing sophistication of the market, and the investments we're making in our go-to-market that Andrew and Tommy talked about earlier. All right, everything you've seen so far are metrics that we've reported before. I've given you a little bit more history and some color about what's driving the growth in each of these areas, but I want to give you a new perspective, a perspective I believe will give you a deeper understanding of our business and build your confidence in the sustainability of the growth. The headline metrics we have been reporting, those are outputs, but to truly understand our business, you need to double-click into see the components that are driving those outputs.
And there's a few questions that will come up, including yours, Alex, that we'll be able to answer as we go through this. And the first, and frankly, most frequent question is, if and whether our business is solely focused on the SMB market. And what you'll see as we go through the segmentation is, yes, we have a very strong healthy and growing business with the SMB, but we've also been able to establish some really good traction and momentum with more sophisticated enterprise, mid-market, and agency customers that now make up a more significant portion of our business. Another topic of interest for everyone is about our net revenue retention, and if it varies based on the customer segment.
The number we've reported is very strong, 107%, but you'll see when we go through the segmentation, it is that it's even stronger for our largest and most sophisticated accounts, and the third area of focus is about our net new customer additions, and how the seasonality or project-based usage for certain cohorts can affect that number from quarter to quarter, so let's dive right into it. I want to give you a couple of new perspectives. Now, I know you've seen this slide, and that's because Tommy stole it from me.
As we were going through the, our practice sessions last week, he loved this slide so much that he's like: "Let me pull it into my section." And I said, "Fine, it's perfect." And it's a perfect location to put it because it really illustrates the momentum and traction that we've been building upmarket, and underscores our confidence we have in our ability to succeed with these larger customers. So Tommy already gave you the numbers, but I want to reinforce it. We've been significantly expanding the number of large customers. Back in 2018, we barely had any customers paying $10,000, and practically zero paying over $50,000, and we've seen a meaningful uptick over the years, including the most significant uptick in 2024, and we're only 9 months into the year. And, Tommy also gave you another stat.
A big driver of this is our new enterprise SEO solution. Since we launched it in May, we just closed our 70th customer last night, and we've been able to expand their average ARR per paying customer from an average of $12,000 to now $60,000, so the high end of the range that we've been talking about. And we expect this trend to continue. We're building pipeline, we're building momentum, and we believe we're gonna continue to drive the number of accounts paying more than $10,000 and $50,000 and even higher, and continue on its upward trajectory. All right, a second new perspective, and this is an important one. I want to spend some really good time on this slide and really unpack it for you.
Our hope in giving you this new insight is it allows you to really see and understand the exciting growth drivers for our business, especially upmarket. So on the left, you're gonna see our solopreneur and freelancer segment of the business, and on the right, our business and agency accounts. Quick definition, solopreneur and freelancer, it's very simply a self-employed individual, with freelancers focused on marketing services and solopreneurs focused on all other types of products and services. That segment of a business, solopreneur and freelancer, rEfficiencyesents today about 20% of our annual recurring revenue. We acquired a significant portion of this cohort in twenty twenty-one and twenty twenty-two, as you would expect. It peaked in about twenty twenty-three, when at the time, it rEfficiencyesented about a third of our annual recurring revenue and over 40% of our customer base.
Since then, and again, no surprises here, there's been a number of macro-related dynamics that have caused this cohort to decline. It hasn't decelerated, it's declined. And because they've rEfficiencyesented about a third of our business, that's had a pretty dampening effect on our consolidated numbers. So metrics like net revenue retention and customer count were especially impacted, particularly with the seasonal and project-based usage dynamics common with this cohort. So while those two factors exist, it's had a dampening effect on the business, and they're experiencing a little bit of softness because of these macro-related factors. This is still a very strong and healthy business for us, and one that we continue to expect to invest in.
That softness and those macro factors will eventually abate, and the trends within this cohort will return this cohort to growth and will continue to gain value with really good unit economics. So let's contrast that with the group on the right, our business and agency cohort. This segment has consistently performed well over the years. As of today, it rEfficiencyesents about 80% of our annual recurring revenue, but the strength that you're seeing here has been a little bit obscured because I haven't shown you until now the actual data points around them. Their net revenue retention, our company average is 107%. Within this cohort that rEfficiencyesents eighty percent of our business, it's over 120%.
This cohort has been growing 30%, and both NRR, our net revenue retention, and annual recurring revenue has been growing faster than where they were a year ago. So we're seeing some strong momentum and growth from this cohort. We believe this is a very healthy and strong part of our business, and we're really excited about what the future holds for them. Our confidence in our ability to deliver growth and profitability going forward comes in part because of the success that we're seeing with this segment. If we double-click in, I want to talk a little bit more about what that business and agency segment comprises of, and Tommy already gave you a few of the numbers.
We have 8,000 enterprise customers, we have 17,000 mid-market customers, and we have 21,000, more than 21,000 marketing agencies, in addition to a very strong and growing SMB business. The combination of those three more sophisticated cohorts, enterprise, mid-market, and agency, rEfficiencyesents about 55% of our annual recurring revenue, and it's growing. If we double-click in further just to see some of the other unit economics of this, as you would expect, the average ARR per paying customer for each of these cohorts varies. For our SMB business, it's a little bit below the company average at $2,600, and for our enterprise, it's as high as $7,500. Overall-...
As we've talked about, our average ARR per customer has increased by more, by 2X since 2018, and it's expanded even further in the enterprise because of the momentum that we're building in the market with our enterprise go-to-market investments and product innovations. All of this is evidence of our pricing leverage, our strong cross-sell and upsell capabilities, and we expect this trend to continue and even accelerate for our most sophisticated upmarket customers as we gain traction with some of those new investments and products and go to market. All right, so far, we've talked all about our top-line metrics, but Semrush is also a very efficient and disciplined business in managing our expenses and our investments. As you've seen, we've significantly expanded our profitability with a 2,000 basis point overall increase to our non-GAAP operating margin since 2022.
And there's a few reasons for that that we expect to continue to contribute to increases in our profitability. The first is our highly scalable platform. You heard Eugene talk about all the data and the flywheel effect that allows us to enhance that data. We have millions of users hitting our platform every single day, but we're able to maintain 85%, nearly 85% gross margin. That gives us a structural advantage to reinvest back into the business and maintain durable top-line growth. Andrew and Tommy talked about our go-to-market, and that we have very efficient CAC or customer acquisition cost to LTV economics. And I mentioned during the Q&A that we target a six-month payback and an overall five X increase on that CAC, and even higher for our enterprise sales-led motion.
We're also one of the first to adopt ChatGPT. We're using it to enhance our overall product, but we're also using it to enhance our overall operations internally within the business. One stat we always like to talk about is 40% of our customer interactions, whether it's customer support or technical support, is automated through AI. And finally, throughout the organization, we've continued to maintain a culture of efficiency. We carefully manage expenses, and we're always looking at investments to make sure we're focused on the areas that will drive the highest return on that investment. Right, so that's our strong foundation and track record of success, and you can see our foundation is strong. Our business has changed quite a bit over the years as we've really ramped up our exposure to larger customers. Our potential has expanded significantly, even over the few years since our IPO.
In this next section, I wanna dive into that a little bit and talk about what's driving that growth and our opportunity, and then deconstruct it a little bit so you understand the components of that opportunity. So first, we'll bring this slide back up. Oleg mentioned at our IPO, our TAM, our market opportunity was $13 billion, and today it's $40 billion. We've been able to triple it. And what's really exciting about this TAM is what Tommy talked about. We have an opportunity to displace a lot of fragmentation. So our share of this market can come from displacement of existing competitors or even proprietary solutions that have been built up inside a lot of our customers' IT and marketing departments. But there's also what I think an even bigger opportunity, there's white space.
Eugene talked about the ever-evolving digital marketing landscape, the enhancing sophistication and needs for marketers all over the world, and we believe that's going to create an opportunity to innovate further and then more demand for our portfolio, and we believe we can capture a meaningful share of both of those. Before I get to the next slide, just really quick, what's driving the expansion has everything to do with our portfolio and the market dynamics that we've talked about. Oleg had a slide where we talked about us going from a single product to a suite, to a toolkit, to a suite, and then a platform. That's allowed us to enhance our cross-sell and upsell capabilities. We've been investing in our sales-led growth and our enterprise go-to-market.
We've been leveraging pricing, and we're continuing to experience growth from the evolving sophistication of marketers all over the world. It's the combination of all those factors that allowed us to expand our TAM by nearly 3x since our IPO. Let's double-click in. Every TAM is very simple: price times quantity. Let's talk about both of those. The P side of the equation is our average ARR per paying customer. What you see on this slide is the current enterprise mid-market and SMB average ARR, and then what we believe we can achieve with products that we have in market today. For enterprise, we'll start there. Today, the average ARR is $7,500. We believe simply by selling and upgrading these accounts to the enterprise SEO solution, we can get to an average of $50,000.
As a proof point for that, you already got it out of us from the Q&A, the first group, the seventy customers that we've already converted, were paying $12,000, they're now paying $60,000 on average, and we're building pipeline that's adding to the proof points of our potential to be able to do that. But our full potential is even more. It's up to $100,000. You saw all the bad options that Eugene put up there and Andrew, about how customers are managing their digital marketing strategy today, and we believe companies, to truly get all the technology and data that they need to execute on an effective digital marketing strategy, they could pay up to $100,000, and we believe we can gain a pretty significant share of that.
Within the mid-market and SMB, we've landed in a hundred and sixteen thousand accounts, and believe there's many more to acquire, and we have a tremendous opportunity to cross-sell and upsell our existing portfolio, including some of the AI capabilities that Eugene talked about. And then, based on a question Adam's asking, yes, or Jackson, a portion of these two segments, where they are very sophisticated marketers, heavy reliance on traffic, and web presence, we do believe that there's a portion of them that would upgrade to the enterprise SEO solution. So that's one side of the equation. Let's get into the other. We believe there's millions of companies that would gain value out of the Semrush platform. We have one hundred and sixteen thousand paying customers today, and we're just getting started.
Andrew mentioned earlier that we have a very effective campaign in building awareness and educating the market about the value Semrush delivers. We're training the next generation of marketers by being part of a core curriculum of 130 universities, and we have a significant number of assets with our Semrush Academy to train existing marketers on the value of our platform. Eugene and Oleg talked about the ever-evolving digital marketing landscape and the advancing sophistication that's creating more demand for a solution. Then Andrew and Tommy talked about our go-to-market and the investments we're making there. Those three dynamics combined create an opportunity for us to target over 7 million businesses worldwide that would gain significant value out of the Semrush platform.
All right, it's time for the section I think you've all been waiting for here, and it's after four o'clock, so we can go. All right, so last section I want to get into, third quarter update. We just closed it last night, a near-term outlook. We'll give you a update on our long-term target operating model, and then our capital allocation strategy. So starting with the third quarter, we guided for the third quarter, revenue of $96-$97 million, or growth of 22%-23%, and then went out, we expect, as a preliminary result, that we'll land at the high end of that range at 23% growth. From a profitability perspective, we guided approximately 11% for our non-GAAP operating margin, and then now we expect to land at about 12%. Right, turning to our near-term outlook. Oleg had this...
He closed this section with this slide, so I don't need to spend too much time on it, but our near-term outlook and the confidence in our ability to deliver growth is based on these four growth drivers. We have 116,000 paying customers today. That's up nearly three times since 2018, and we believe there's millions of companies that can get value out of Semrush. So our primary growth driver is more business and continuing to get additional net new additions. Our average ARR has expanded. It's doubled since 2018, and you saw as I went through our TAM or our market opportunity, the significant opportunity to inflect that upwards. We're gonna continue to leverage our sales-led and our product-led motions to cross-sell and upsell within our base to drive that number higher.
Finally, we've launched our, our new enterprise SEO product, and you've heard a lot about the traction and momentum and excitement about that product today, and then, as Oleg mentioned earlier, our aspirations don't end within the enterprise with our SEO products. We've developed a comprehensive marketing solution across six key channels with data and intelligence in its core, and we're going to continue to add enterprise-grade capabilities to continue to expand our opportunity in the market and drive Semrush's growth higher. Based on these four factors, we believe we've achieved 36% compound annual growth rate, and in the near term, committing to about 20% compound annual growth.
Now, it's a compound annual growth rate, so yes, there may be a year where it might be slightly below or a year where it's slightly higher, but we believe that we have an opportunity to deliver durable, sustainable growth and sustain 20% compound annual growth in the near term. From a profitability perspective, we're going to continue to see cash flow and non-GAAP operating margin expand upward. We're investing very heavily in the business, in our products, in our go-to-market, but our business is so efficient, especially because we're able to deliver 85% gross margin, that we're actually enabled to have some of that drop down to the bottom line and deliver expanding profitability. Looking longer term, I want to get into gross margin, our expense to revenue ratios, non-GAAP operating margin, and then free cash flow margin.
But first, you'll see we have a history and track record of success of expanding our gross margins, gaining efficiencies within each of our functions, and continue to expand profitability, and in the long term, we expect that to continue. So our target operating model puts us at about 85% gross margin. We're right about there now. For sales and marketing, because of the efficiencies we're gaining in our product-led motion, we can invest in our sales-led growth motion, but still gain efficiencies and reduce the overall expense to revenue ratio. With research and development, or our R&D teams, we're going to continue to invest. Semrush is always going to be about innovating and delivering on the demands and advancing sophistication of marketers and business owners around the world, so we're gonna maintain a pretty healthy level of investment in R&D.
With G&A, you've seen over the years, we've had a significant focus of investing to make sure we can scale for growth, but also focusing on efficiency throughout the organization. That trend is also going to continue, and we'll continue to bring down that G&A expense to revenue ratio. All in, our non-GAAP operating margin target is 22%, and our free cash flow margin, 25%. Now, you'll notice there's a little bit of a flip that happens, so free cash flow margin for this year, we guided approximately 8%. It's slightly below our non-GAAP operating margin, but it flips in the target operating model. There's two reasons. One's taxes, I'll explain that later.
Another one has to do with the fact that because we're investing and succeeding in moving upmarket, because we're focusing the sales organization on negotiating longer-term contracts and annual payments, we believe there's going to be a working capital benefit that will allow us to expand our free cash flow margins. All right, last slide, then I'll wrap it up, and we'll open it up to questions. I wanted to end it with our capital allocation strategy. You've heard a lot today. You've heard a lot about how we're investing in our products, how we're investing in our sales and marketing teams, and the benefits and traction that we're starting to see. But at the end of the day, everything we do, we wake up every day to build shareholder value, and we do that in three ways.
One is investing in a business, and we've talked a ton about that. We also want to be investing in M&A, and you've seen recently that we've engaged in selective M&A. Going forward, as long as market conditions remain favorable, we'll continue to seek opportunities that expand to very close strategic adjacencies via a highly selective M&A process, so make no mistake, though, we're not rolling up all that fragmentation. The last thing we're gonna do is start acquiring those 14,000 martech tools. We're investing in organic growth and believe we have a significant advantage out there in the market with our platform to start to displace all of that fragmentation, but in certain cases, there might be very close adjacencies through a highly selective M&A process that would add value and allow us to accelerate our strategy.
And finally, we're gonna maintain a very strong balance sheet. We have $230 million of cash and equivalents on our balance sheet as of the second quarter, and we're going to continue to maintain a strong and healthy balance sheet. Our free cash flow margin, our profitability continues to expand, enabling us to put some of that capital to work, but also to maintain very healthy balances. And finally, we'll continue to be disciplined with our stock-based compensation. All right, let's wrap it up. You've heard a lot. You heard from Oleg talking through the success of the company overall, our product strategy, go-to-market, and a lot about our financials. But if there's six things you take away from here, it's this: Our market opportunity is massive.
It's tripled since our IPO through multiple drivers, and we believe we have an opportunity to capture a significant share. We are the market leader, as you saw, Eugene put up a slide that showed we're recognized by industry analysts as being a leader across multiple categories. We have highly recurring and profitable and durable revenue growth. We've achieved 36% compound annual growth since 2018, and we're now committing to 20% in the near term. We're able to continue to innovate and expand our platform that enables a very healthy, strong, and growing cross-sell and upsell capability within our business. Our average ARR continues to expand, and we're going to continue to drive that number higher. We're also, we believe, an AI winner. First, because there's going to be, there already is a lot of disruption in the market.
You heard from Eugene during his section, and in a follow-up during the Q&A, that the more disruption we see out there in the market, the more it creates a need for Semrush products to create, to provide a platform that allows them to navigate through all that complexity. And we're continuing to invest in AI and monetizing it throughout our platform. And finally, we have a very efficient business. We have high gross margins, and we're continuing to expand our free cash flow and non-GAAP operating margins. All right, that wraps it up for us today. Thank you so much for being here. We're going to open it up one more time for Q&A, and then you're gonna see a QR code up here. If you can, just scan that, there's a couple, it'll bring you to a short survey.
We'd love to hear your feedback about today.
Any questions?
All right. Can't be out of questions.
Maybe one more?
Yes.
Thank you. On the near-term CAGR, do we have any definitions for near term?
The next, call it the next couple of years.
Okay. Okay, and then, you said you were gonna talk about the reasons for flipping free cash flow versus, or free cash flow margin versus non-GAAP EBIT. One was taxes, and then another was working capital. Are you gonna bill multi-year, or is that just going from, you know, shorter term to just annual billing? Like, what is the actual-
Exactly, yeah. So it's two things. Our PLG motion is primarily monthly subscriptions. Our enterprise focus and our sales-led motion is multi-year committed contracts with a minimum of an annual billing. So that enables to expand our deferred revenue, and of course, create favorable working capital.
The tax piece?
Tax, it's a big topic. There's this code, Section 174, that requires you to amortize your R&D spend over fifteen years, and we're a few years into that. So every year, we advance to get up to that fifteen-year steady state. We'll continue to reduce our effective tax rate and therefore generate more cash flow.
Hey, Artie Villa again from JP Morgan, on behalf of Mark Murphy. Looking at your long-term kinda target financial model, going up 2% on net, gross margin going up about five points, but then also R&D as a percentage of revenue going up a few points. Can you just describe kind of like what your thinking is there, where those dollars are going? Since maybe that's a bit of a change in your thinking there.
Yeah, gross margin has expanded from 80 to 85, our original long-term target model. We blew through that pretty quickly and are now approaching 85%, so very, very easy path to get to this 85%. For R&D, you heard a lot from Eugene, Oleg, and everyone today about the advancing sophistication and this evolving digital marketing landscape, and we see an opportunity to continue to invest and capitalize on a lot of that. So we're gonna be putting some R&D efforts to work organically and making sure that we're set up for success in the future. Go ahead.
Great. I wanted to ask on the long-term margin, so going from 11% to 22% gives us a lot of runway, but just wanted to think about the cadence to kinda getting to that 22% target, given all the opportunities you have right now to push really aggressively into the enterprise, whether it's investing more in that direct sales force or investing more in the R&D capability.
Yeah, I mean, we can. It won't be consistent every single year. You saw in the first half that we actually outperformed our expectations, and we were able to beat and then raise our non-GAAP operating margin targets for the year. We took advantage of that opportunity to accelerate some of our investments in the enterprise, both product and go-to-market, and we'll continue to do that. So I think you'll see, depending on the market dynamics, the traction and momentum we're getting in certain areas, you'll see it continually tick up, and in certain years it might be a little bit more, certain years a little bit less because of that.
What, what products and features aren't in your portfolio that you would like to add, and how aggressive is the investment spend and timeline to add these products?
Great question. That's for you.
Yeah, so you've seen us expand in the portfolio very quickly, and, you know, a lot of this is done by effectively just building a little bit different interface and a little bit different data pipeline for existing data assets. Some of this is done through acquisitions, and I think in general, the limiting factor here is not necessarily our ability to build world-leading products in all those new channels and verticals. It's really our confidence in our ability to sell this. You know, we've started only in May to, you know, with enterprise SEO. We're very, very encouraged by the early traction. I think numbers speak for themself, and of course, as we see this, we're already picking, you know, our number two, number three products to go after.
But we would ask everyone to be a little bit, give us a little bit time, you know, be patient. I think we're moving extremely fast, and we would always... We're never satisfied with how fast we move, so we always wanna move faster, but I think what we've done so far is very impressive.
Oh, he's got the mic.
Oh, Adam Hotchkiss, Goldman Sachs. Thanks. Thanks so much. Just quick clarification, on the 20% near-term growth, what are you assuming for the, 20% of ARR segment coming from the solopreneurs? Is that within that 20% assumed to sort of continue to decline, or is there an expectation that that improves? How did you think about that within that calculus?
Adam, mathematically, it has to be. So our business and the agency cohort's growing 30%. This cohort we expect that this cohort will abate at one point. It's a typical acceleration of a trend that eventually will revert to the mean. So we expect it'll happen at some point, but for now, that is likely a headwind, for a bit.
Okay, thanks.
My question was actually exactly on that topic.
Great.
Alex Captain with Cat Rock. How big was that solopreneur segment before twenty twenty-one and twenty twenty-two, when it started taking off? Number one, and then number two, how else are we gonna frame where that stabilizes eventually?
Mm-hmm.
Do you have any other ways of figuring out where that stabilizes?
Yeah, good, so two good questions. So it was growing at about two times the rest of the business in 2021 and 2022. So we're close to back to where it was prior to this COVID acceleration of demands. So we believe it's soon, but there could always be a dynamic where it dips further, a reversion to a mean could have a little bit of volatility to it. So, again, we're expecting this headwind will eventually abate, and we'll talk more over time about our progress in doing that.
Can I ask? That was a very efficient answer, so just to follow up on a different topic. Some of our research has suggested that your competitors, like Ahrefs, have dramatically higher margins, closer to 50%, with similar gross margins to what you guys have. Your model gets you to a point that's substantially lower than that. What kind of growth rate would you still expect to have when you reach that model? Often, companies will talk about a rule of 40 and-
Mm-hmm
... and framing of margin with growth rate. So I'd just be curious as to what kind of growth rate we should expect as you approach your model.
Yeah, now's probably a good time just to reiterate my philosophy on guidance. Our focus, as a management team, here at Semrush, is to always make sure we're setting up the company for success. We wanna make sure that we're giving you insights and visibility into where we have our insights and visibility, and ensure we're able to deliver on our commitment. So we're committing to a near-term outlook. Our belief, longer term, is that there's a massive opportunity, a $40 billion market. We have a significant portfolio of products in market today that allow us to capture a sizable portion of that market, and we believe because of that, that we can sustain durable growth for the long term.
I can't give you a specific number longer term than the near term, but we believe it's gonna continue to be durable.
Thanks.
All right.
Okay.
We've answered everything. Fantastic. All right. Thank you guys for being here. This has been a fantastic event. It's been a pleasure talking to you. Looking forward to seeing many of you after we report our third quarter earnings, and talking to a few of you later. So thank you very much for being here. Don't forget to scan this and give us some feedback.
Just a reminder as well, please don't forget to scan, as Brian said, for feedback, and I believe we also have a cocktail reception.
Yes
... now. Of course, please join us for as long as you like. Thank you.
Absolutely. Thank you.
Thank you.