Okay, good afternoon, everyone. I am Mark Murphy, Head of Software Research for J.P. Morgan. It is a great pleasure to be up here on stage with Bill Wagner, the new CEO of Semrush, and Brian Mulroy, who is the CFO of the business. First off, I just wanted to say, you know, welcome here, and thank you for taking the time out to be with us.
Happy to be here, Mark.
Maybe you could begin with just a brief introduction of yourselves and a kind of a brief minute or two overview of Semrush so everybody's grounded here.
Yeah, so sure. I'm Bill Wagner, as Mark said, new CEO. Been not quite 60 days, I don't think, yet. I was on the board at Semrush for a little over two years, and it gave me great insight to the company. You know, I think probably by most accounts, the leader in online visibility really came out of the search engine optimization space, search engine marketing space. And then through some tuck-ins, as well as organic, has built out a platform that goes from social to local marketing to, obviously, search and search marketing. It really kind of spreads the whole online digital visibility space. The company started, began its life as really a product-led growth company selling high-velocity software, credit card purchase, and then has evolved more recently into moving up market, adding essentially up-market capabilities and enterprise product.
Now today, enterprise is our fastest growing part of our business. We just announced that our enterprise is now up to about 200 accounts. We have 8,000 enterprise, but only 200 are using our new enterprise product, which we just launched less than a year ago. That is a really big growth driver for the company. We are excited about that. We are excited about artificial intelligence and what that means for marketers. I'm a recovering Chief Marketing Officer myself, so before I became a CEO, I spent many years running marketing teams at private and public companies. I kind of know the pain, and I've talked to customers. I know what the pain is going through. They are all really scrambling to understand the impact that artificial intelligence is going to have on their organizations and on their brands. We are really well poised to help with that.
Okay. You've lived it. You have lived straight through it. I definitely want to spend some time on the two or three kind of big topics that you brought up right there. If we think back to the time of the IPO and the evolution that we've seen in the business today, I would call it going from traditional SEO to a much broader marketing platform. You mentioned all these. You mentioned local marketing. I think you mentioned social media management.
Competitive intelligence.
All this. When you sit down and get a demo of the product these days, it is kind of a mind-blower in terms of how many screens are in there, the data flow, and how deep you can go in there. How has the addressable market opportunity expanded in these years that you've been on the board and you've been watching this? How receptive do you think customers are going to be to giving an increasing share of their wallet for the broader suite that you're developing?
Yeah, look, I think like a lot of other sectors of software, ultimately, people end up preferring to buy a platform that solves multiple problems than a point solution. As digital marketing has matured, I think we have benefited from people who have been trying to consolidate around a limited number of tools as opposed to buying 10 different tools to solve marketing problems. That has been going on, by the way, since early days, including email marketing platforms that have now been acquired by other people.
Definitely.
That was my big complaint with my team when I was running marketing, and it's still going on today, although the product sets are obviously different. What we've also seen is, I think, the SMB space, and as we moved into mid-market customers and larger customers, we really, up until recently, we made them kind of purchase SEO first and then spread out from there. We realized from talking to our customers, they actually wanted to buy the other tools first sometimes. Certain companies are better; marketing in local is more important, marketing in social is more important. Giving more optionality to those folks was something that we set out to do, and actually, we just launched that capability this past week.
Obviously, moving the enterprise space, I think enterprises in particular are trying to consolidate their tools, and you probably see this in multiple sectors. For them, I think we are what we present to them as, we think, an unrivaled data set and capability that goes really deep, and then a visualization tool that allows them to do really deep research into how they're performing, how their competitors are performing, how they can improve their visibility, whether that's in search, local, or in AI and answer engines.
Okay. That's a great vision, and I agree with you that I think the underlying data set is an important factor too. Let's talk about the enterprise product that you've launched. The simple view of it to me would be that you launched it a year ago or even less than a year ago. As of Q1, it's $11 million of ARR. You're talking about that growing to $30 million by the end of the year. I think even in the first quarter that you launched it, the logos that you mentioned were impressive. We look at it since then: Gartner, Salesforce, DoorDash, Samsung, HSBC, Alibaba, Square, big companies, and they do have sophisticated marketing organizations. What do you think is leading to that level of adoption quite so quickly for something that's only been out there about a year?
I think we have very unique capabilities in our product. I think we're widely recognized as having been able to give these bigger brands really deep insights and multi-leveled insights. You may want to know how your, if you're a Samsung, you may want to know how one product is performing in one region against a certain set of competitors that may be very different than another set of competitors in a different region. You may want to know how one TV is performing versus another product and how you're comparing if someone searches in a retailer like Best Buy online and how you perform. That kind of visibility is something that we do, and it's pretty unique and really hard to get anywhere else.
We have this really rich data platform, and then we've layered on this really powerful visualization tool essentially on top. It is really, we've been very, very pleased with the reception the first year, as you mentioned. We are launching our AI tool for the enterprise that will go GA next month. We have 1,000 customers who have already signed up for the waitlist for that product. We are really encouraged by what we think the opportunity is there.
Okay. You had touched on earlier, you said, like all markets, there's going to be eventually, in the fullest of time, there's going to be a preference for a single platform. You are driving some of this with the enterprise product. What do you think is the, can you comment on the cost savings or value prop if you go into an enterprise and they adopt this product and they're consolidating some of the other point products? Because you bet, again, you're recovering CMO.
Yeah, yeah. I think it's really, that's not the way I see CMOs and marketing teams look at our product. Our product is really about revenue growth and acceleration. It's much more that than replacing a toolset. What they do today is they get data from a platform, whether it's ours or somewhere else, and they generally have had to export it into their own homegrown tools or other kind of publicly available BI tools. We've kind of, that's what we're replacing. You can now do all that work within our platform with our data, which is already really powerful. That's, and because you do that, you get greater insights and you drive, ultimately, you drive greater revenue and more efficiently. The cost savings are actually in using the platform, you're actually more efficient in your marketing spend. You're saving money because you're not wasting.
You know what dollars you're spending and are yielding a good return versus not. That's where the savings come out.
Okay. Who do you see competitively when you go in and try to sell at the enterprise level?
You know what?
Because I'm thinking if you've got a patchwork of products and you're dumping it into Excel or you're dumping it into Power BI or Tableau or something like that, then are you running up against them or are you running up against more traditional kind of SEO?
Ironically, what we're seeing a lot of times is we're kind of replacing our PLG product. The individual marketers have been buying our lower-end product for years. They've been swiping a credit card and they expense it. You may have 10 people in a company. In one company I know of, we have literally dozens of people who have their own individual accounts. We're going in and maybe that customer might be, we have 8,000 enterprise-sized customers. On average, they pay us $8,000. The people who are buying enterprise solutions for us are paying us $60,000. I think that number will continue to go up. It is really an opportunity for us to displace these disparate operations inside the company and give them a holistic look across their brand and unify their marketing vision.
That's really, it's a lot of greenfield, but I think the competitive opportunity for us is really kind of upgrading them, taking them along the path and showing them the capabilities they can get in the new solution versus kind of do it themselves with our kind of consumer-grade solution.
Does the seat count rise when you go in and do exactly what you described? I think you said, I don't know if you said a dozen users or dozens of users.
Yeah, I think ultimately it will. I think it's probably one year in. I don't want to make any proclamations yet because I think we've sold 200, we've upgraded. So we're really early days, although we're pretty happy it's going to go from $0 to $30 million in a little over a year. I think we're really pleased with the traction, very excited about the AI Optimization product we're about to launch. As we said on our call, we've been pretty conservative about not building any expectations around that product for this year. We want to get that product GA and start selling it. Interest is very high.
I'm sorry, the AI product, you're talking about the enterprise one that's coming up?
Yes.
Your AI, I think you disclosed $4 million in ARR, excuse me, was coming from AI at the end of Q1, AI Toolkit, ContentShake AI.
Yeah, that's right.
Et cetera, add creative AI. Is there anything else that's going into that bucket or?
That's the majority of it today.
That's today?
Yeah. That excludes AI Optimization, which is really our enterprise product, which again will go GA next month. It is an open beta today.
Where do you see the best product market fit? Across those products that I mentioned, what is resonating?
I think, I mean, we saw AI Toolkit, which again is a really entry-level AI marketing tool. We saw it became one of, if not the fastest growing product ever. It just speaks to the desire of marketers and business owners to figure out how they get their brands to show up in these answer engines. You think about how an enterprise, especially who's spending hundreds of millions of dollars in marketing a year, a packaged goods company or a clothing company or a consumer goods company, and they are really desperate to help finding tools that help them show up in those answer engines. We are really excited about it, but it's not even out yet. We will temper our expectations.
Okay. We appreciate that. The $4 million still is of interest, right? Because that is something like 1% of ARR in round numbers, right? Most SaaS application companies have really struggled to get anything AI-related that they're doing literally up to that level of, they're well below 1%. You are there. I remember talking to Eugene about what you were doing. As an organization, you've been way ahead of the curve in making use of the GPT models. I think before people knew what GPT meant, you were using it. What's the best way to think about the growth of that pre-existing AI book of business? The other question you always get is, is it going to be, is that additive or is it somehow negating or cannibalizing some other usage?
Yeah, we see it as a huge opportunity. I think Semrush is uniquely positioned to benefit from AI. Most companies are utilizing AI to sort of enhance the value of their product. Of course, we're doing that. We have an AI assistant that's essentially doing some of the work for marketers and business owners to make sure that we're highlighting the best opportunities and getting them faster time to value. Like many other software companies, we're doing that, monetizing and enhancing the overall value of our platform. There is a unique opportunity based on the market that we plan. Businesses and marketers are looking to understand how the LLMs and answer engines are perceiving their brands, what consumers are searching for and how it relates to their market and the keywords that are important to them.
We have an opportunity to do what we've always done, to give them the insights, the analytics, the actual insights and intelligence to help them understand what's happening. More importantly, how they can shape and influence that to ensure that they're actually perceived in the most positive light going forward. We have an entire suite of products now, AI Toolkit, which was just launched, and then AI Optimization, which is now in beta, which does exactly that. We see the opportunity as quite extensive for us.
Quite an opportunity, but I assume it's not going to trace out the kind of arc that the enterprise product is tracing out if you've got $11 million now and we think it's going to be $30 million in a few quarters. Or do you think it's just too early to say?
Yeah, I think it's too early to say. I mean, I think the demand is as strong as I've seen for any product I've ever been involved in. But until we start selling it, I think, I know the market demand is really high in companies who are trying to figure out how their brands show up in an AI search-driven world. That's still, today, that's still depending on how you measure it, somewhere between 3% and 16% of all searches. It's still small, but brands are really desperate to figure that out.
I want to come back to that. I think it's a huge topic across the broader landscape that's not getting enough attention. Before we do that, Bill, rewinding back to kind of some of your opening statements, what made you excited about trying to take on the role of CEO at Semrush? I'm sure you had a good view into it because you'd been on the board for so many years, as you said.
Yeah.
What are the raw ingredients here that you see that you were impressed by?
Yeah. First of all, as I think before I was, as I said before, I was the CEO, I was a marketer. I understand the use case really well of Semrush. That is what drew me to the company in the first place, along with Oleg and the team that was there. Over the years being on the board, I helped recruit the team. I worked with Oleg to bring Brian aboard and bring other kind of really talented executives. I knew the company super well. I really think the company is poised in a very unique position to take advantage of the disruption of AI and how marketers, how their roles and their jobs are going to change. I was super excited to be a part of that.
That was really what made me kind of jump in and say, like, this is a company I want to be a part of. It is also a fun size. It is still small. It is all those things. You know the company quite well. Companies that still sub a billion dollars, there is a lot of opportunity for do. We are just beginning our profit journey as well. Brian and the team have done a nice job getting leverage out of the model. We are still a 20+% grower. We are not anxious to, like, we just want to be consistent in our delivery of margin and continue to invest in growth. I just see a lot of opportunity. The combination of those things is probably where we are going to mark.
Yeah, a lot of great characteristics there. I think you had mentioned that in your first couple of months in, you had gone out and met with a number of customers. What has surprised you, kind of upside and downside as you're out there mingling more directly with them?
Yeah, I think the upside has been the, and I would say it's the surprise. As a board member, I probably didn't fully appreciate the value of the data platform. I think every customer conversation, I think without exception, the customers were talking about the value of our data. I really began to appreciate what a competitive moat that is for us and gave me a real interest in understanding how we can continue to leverage it even further going forward, which I talked about on the call last week. Yeah. I think on the downside, it's just like I want to move faster. Yeah, I mean, it's very much a founder-led company until recently.
I think we have this opportunity and I think the world is changing really rapidly and we are really at this point that we can be part of that positive change, especially for the marketing world out there. Let's go. Let's go do it.
Just to pull on that concept of, I mean, obviously every company is always trying to go faster, but it can kind of come in for different reasons and at different cadences. Have you identified any low-hanging fruit where, as you've gotten out there in the early stages, where you say, maybe it's product, maybe it's go-to-market, that you think you can focus on? I think the sense that we're getting is the main thrust is going to be, it seems like it would be enterprise and AI. It's hard to kind of disagree with those two vectors. Is there anything else?
Sure. There's another one, which again, I highlighted last week. I still think on our product-led growth platform, which is the majority of our revenue today, there is too much friction in that. I think we can make it easier for customers to buy and use our products and decrease the time to value. I think that's an example of something I saw even before I started, a hypothesis I had coming in. I was able to confirm that within the first 30 days and work with the team. Some of the things have already been introduced and there will be more down the road.
Just onboarding steps that you can take out, configuration steps, the checkout.
Yeah. I mean, all those things for sure. There is also pricing and packaging opportunities in the company that that is not something I am prepared to talk more about today. I think we can do, I think we can be sharper there. We also have a lot of free users, a lot of people who use our product and then pay for it and then drop out and they use the free version and then come back and use the paid version. I think there are opportunities to think about our products and how we price and package them differently than we have in the past.
Since you mentioned the PLG side of it in that context as well, on the other end of the spectrum, you can have a sales-led motion. Somewhere in between, you can have kind of a sales-assisted motion. I would assume as you're going up market, you've got to think a lot more about the sales-led motion. How do you feel about the state of that team and kind of its readiness to go on there and take on large enterprises?
I think, first of all, I think the results have proven to be really good. Clearly we're doing some things right. That's without my help. Even before I came in, I think the team had done a nice job, good leadership in place. Look, we've been at it for a year since we had our enterprise, introduced our enterprise product. I think there's room to continue to invest behind it. I think the structure is there, the framework is there. We figured out, I think, a good model in terms of what the right quotas are, what the right rep profiles are, what our leadership needs to do. Now we have the product. Now we just need to introduce new products more quickly.
As you heard, I'm like, that was one of my other priorities last week was we'll have at least three products in the hand of our enterprise sales team this year to sell at least versus the one they have today. I think that's an exciting opportunity for them. They're obviously very excited to hear about it. Kind of accelerating that enterprise roadmap is definitely something that we're investing behind.
How are you thinking about headcount growth cadence now, Brian? It was slower in 2023. It was around 2% in headcount growth. In 2024 it picked up a lot, it is 12%. Is there an implication for where you need total headcount growth to be to kind of carve out the 20% trajectory and do what you want to do with enterprise and AI?
Yeah, I think it'll slow from here. Look, we have a lot of efficiencies and capabilities to grow and scale. 2024 was the year where we were pushing really hard to invest and accelerate our enterprise opportunity. There were for sure investments in both our go-to-market motion and product portfolio. Remember, we did do a couple of small acquisitions where there were some headcounts. Not all of that 12% was organic. I think we'll continue to pace at a modest rate. AI is certainly a game changer for us where we feel like productivity and efficiency through the organization will continue to scale. I think it means that we can gain leverage and scale in a way where the headcount growth will potentially slow from here.
That choice is maybe somewhere in between those two zones.
That's right.
Okay. Let's talk about the way you think about average ARR per customer. Enterprise SEO, you mentioned having reached 200 or more paying customers. But the ARR being $60,000 is a completely different zip code for this business. The blended is $3,600. And so you go in an enterprise and it's $60,000. How long do you think it could take? Maybe we're beginning to see it where I think that that $3,600 is up 14% year over year. Are we seeing that then? Is that the impact of what's happening on the enterprise side or are we still kind of early innings?
That's exactly what it is. We've doubled our average ARR. Of course, continuing to drive that upwards is a big growth driver for the company. We're able to do that in three ways. One is we just continue to innovate. We continue to stay ahead of the demands and the complexity of digital marketing and release new tools that we are able to monetize and expand our overall footprint. As we've been talking about today, we're moving in a much more pronounced way into the enterprise, both from a go-to-market and a product portfolio perspective. That's continuing to expand it. We see opportunity with AI, with this new AI Optimization product and AI Toolkit. Our expectation is our average ARR will continue to grow. We're focusing a little bit more on that more sophisticated cohort of accounts.
Even in general, as that mix of accounts starts to increase, average ARR will rise from that as well.
What about retention?
Retention in general?
Yeah.
What's the impact on retention?
I mean, it doesn't change over time.
Retention as you skew more up into enterprise. For sure, it'll increase. Actually, we already see that. One of the segmentation that we did for Analyst Day was showing how the enterprise cohort has a net revenue retention of 120% plus and that that cohort's growing 30%. It is by far the strongest, growing the fastest, has the highest propensity to adopt our more sophisticated and higher valued products. Of course, AI. As that cohort increases in mix for a business, we'll see net revenue retention, our lifetime value, our average ARR, and overall growth potentially benefit from that.
Okay. If we think about the inverse, you probably don't get too many questions on this. I think at the last Analyst Day that you did, there was this stat of 20% of ARR was coming from kind of way down market, solopreneur, freelance. The net, the retention on that is 80%, which is less than 80%.
Yep.
Okay. Which is expected when you talk about, or when you go that small in the customer size. And then the ARR is declining there. There is a lot of seasonal use and all that. What do you want to have happen there? Or what do you think is going to happen there this year? Do you think that it kind of stabilizes and flattens out? Or is it more like you are designing in kind of a bleeding off there and maybe wanting to go where the cohort economics are better?
Yeah. Look, for those new to Semrush, we benefit from very wide appeal. We have Fortune 500 accounts, enterprises. We actually have over 8,500 companies that have more than 500 employees that use our portfolio. We have 27,000 agencies. We have quite a few mid-market accounts, SMBs, and what we call solopreneur and freelancers. We're also in 150 countries, and we span across all segments and all industries. Very wide appeal across quite a diverse set of customers. On the lower end, we have a cohort of freelancers and solopreneurs that are more project-based and seasonal in their usage. We're happy to have them. The unit economics associated with them are fantastic. We're going to continue to invest in the product and make sure that it's easy to use and is providing value for all segments of the market.
What's happening at the lower end of the market is a little bit by design. We're focusing more of our investments and our initiatives on the enterprise and making sure that we can capitalize on that opportunity. We see a lot of opportunity within that enterprise segment with AI. That's the focus right now. Over time, as we continue to simplify the product, leverage more AI-assisted features, and not only make it easier to use our product, but also get to value in an automated way. We're almost doing the work on behalf of those freelancers and solopreneurs. In the long run, we see an opportunity not only to have that trend abate, but also turn into a growth driver for us.
Oh, okay. Interesting.
Keep in mind, any investment in the data platform really benefits both segments.
Sure.
Again, back to that's a moat for us and something we're going to continue to build out.
Let's talk about the top line trend. You had given, back at the Analyst Day, this guidance is for sustained 20% near-term revenue CAGR. You've been executing to that. It's not as though you're running 5-10 points above that. You're kind of right around there in that zone. A lot of companies will shy away from giving kind of a multi-year top line look. What do you think gave you the confidence to establish it that way?
Yeah. We're guiding in the near term, which is growth 2024 through 2026, a 20% CAGR. We're actually a little bit ahead of that. So we ended 2024 at 22.5% growth. We're guiding 20% growth at the midpoint for 2025. And we're committed to that number. What gives us confidence is the enterprise opportunity and the momentum that we're building, the potential with AI, and then the continued diversification of our platform that continues to grow and scale our overall footprint within our base and for new customers that are joining the Semrush world. We'll see. There's obviously certain uncertainty in the market. We're cognizant of some of the macro dynamics and geopolitical dynamics that are out there. That certainly could impact the number. But assuming things continue to stay steady and where they have been, we're committed to that number.
The trends you saw in Q1 and through April and that type of thing are kind of supporting this 20% number on the year?
Yeah. I know there's a lot of news in the headline in terms of tariffs, geopolitical dynamics, a lot of uncertainty. We didn't see anything directly related to that that impacted our business. The growth drivers that are driving the business are strong and continuing to influence the results. Again, it's not to say we're not conscious of and preparing for certain things and being prudent about what the second half could have in store depending on how all that uncertainty plays out. In terms of what we're directly experiencing, we're continuing to execute our heads down, focused on controlling what we can, building out our enterprise business, continuing to innovate with AI, and continuing to drive towards that near-term outlook.
Yeah.
I would say the only impact it's really had on us, Mark, as you know, is on the expense side where the changing dollar effects really hit us on the expense side. We've absorbed it, which just underscores the leverage in the model. That is probably the only thing that we've seen.
When you look back around the history of economic fluctuations, marketing and advertising does seem to be an area where a lot of companies feel as though they can dial it up and dial it back down, right? Kind of depending on the weather. Do you see any potential differences? I mean, it manifests differently for different companies and different business models. Do you see any potential differences or opportunities maybe for that activity to be a little more resilient versus some of the other cycles? If we do, in fact, get into an economic slowdown or some kind of a change through the course of this year, do you think it could be any different? I mean, one of our prior sessions, one of the companies was saying companies just went through COVID. They went through the kind of readjust. They went through the inflation wave.
Now it's tariffs and DOGE. Almost like they may be becoming a little inured to this, like a little accustomed to the fact that there will always be hurdles and maybe it creates a little more resilience.
Yeah. Again, I think as a former marketer, I know that what you really, the most effective use of your marketing dollar is people who are searching to buy something. I mean, think of from a ranking of where you spend your marketing dollars. I mean, digital marketing tends to have a very high return compared to other forms of marketing.
Yeah.
Again, we haven't seen any degradation from my perspective, given my experience. I would be surprised if we'd be one of the first or early companies to see any kind of pullback. Not saying it couldn't happen, but we haven't seen it. Again, my experience is where we are in the marketing stack, we generally provide the most value, very high in terms of return on investment. That's our perspective.
One thing I'd add is just under all things equal, the impacts potentially, you could potentially have an impact, but AI is a game changer right now. Companies that aren't focused on that and investing in it and understanding how their brands are being perceived, building capabilities to be able to influence it and getting ahead of that will fall behind. I think that's something that would certainly add to the resilience of our ability to navigate through it.
It's a great note to end on. I think the excitement is pretty tangible here around the trend line you're carving out in the enterprise side of it and then the thousand customers that are signed up and going to be trying your enterprise AI product. I just want to thank you for taking the time to come over here to the conference.
We really appreciate it. Hopefully, we'll see you next year.
Thanks, Mark.
Thanks, for having. [Guess]
Thanks very much.