Stricter GDPR Rules Will Constrain Analytics Yet Inspire New Adaptations

Key Takeaways

• Increasing data privacy regulations and industry shifts toward privacy-first technologies threaten Similarweb's data access, product differentiation, and long-term revenue scalability.
  
• Growing customer base and product innovation are challenged by industry consolidation and enterprises building in-house analytics, potentially limiting pricing power and earnings growth.
  
• Regulatory risks, technology shifts, evolving customer needs, and increased competition threaten Similarweb's data access, platform relevance, pricing power, and long-term revenue growth.

Catalysts

Provides digital data and analytics for power critical business decisions in the United States, Europe, the Asia Pacific, the United Kingdom, Israel, and internationally.

• While Similarweb's strong revenue growth and expanding multiyear contracts reflect clear demand for digital intelligence fueled by the ongoing digital transformation and adoption of AI, the persistence and escalation of global data privacy regulations such as GDPR and CCPA could constrain the company's ability to source high-quality data, threatening the long-term scalability and visibility of its revenue streams.
  
• Although the company's expansion into AI-powered solutions, predictive analytics, and new industry-specific products has expanded its addressable market and created new, higher-value revenue streams-particularly evidenced by multimillion dollar, multiyear contracts with big tech clients-industry-wide privacy enhancements like the deprecation of third-party cookies may gradually erode the accuracy and completeness of its analytics, ultimately undermining product differentiation and driving down net margins.
  
• Even as the proliferation of e-commerce and complex, omnichannel digital journeys increases dependency on third-party market intelligence, the rise of privacy-first technologies and the shift to on-device analytics could prompt enterprises to rely less on traditional external platforms like Similarweb, risking a slowdown in customer acquisition and negatively impacting ARR growth over the long term.
  
• While Similarweb's focus on customer expansion, record sales productivity, and positive operating leverage from SaaS models have resulted in sustained improvements in free cash flow and EBITDA margins, the company's reliance on external data partners exposes its business to abrupt changes in data access or licensing costs, which may pressure gross margins and earnings stability going forward.
  
• Despite resilient revenue durability supported by an 18% increase in customer base and the success of land-and-expand strategies, consolidation in the analytics industry and the growing trend of enterprise customers building proprietary in-house analytics could significantly squeeze Similarweb's pricing power and limit its ability to sustain revenue and earnings growth as the digital ecosystem matures.

Similarweb Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Similarweb compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Similarweb's revenue will grow by 14.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -10.8% today to 4.6% in 3 years time.
• The bearish analysts expect earnings to reach $18.6 million (and earnings per share of $0.23) by about August 2028, up from $-29.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 69.5x on those 2028 earnings, up from -26.6x today. This future PE is greater than the current PE for the US Software industry at 35.4x.
• Analysts expect the number of shares outstanding to grow by 3.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.85%, as per the Simply Wall St company report.

Similarweb Future Earnings Per Share Growth

Risks

• Increasing data privacy regulations and further restrictions on data collection-especially related to GDPR, CCPA, and potential new global laws-could materially constrain Similarweb's ability to acquire and use datasets, undermining the depth and value of its analytics and negatively affecting future revenues and platform differentiation.
  
• The ongoing deprecation of third-party cookies and similar tracking technologies may directly diminish Similarweb's capacity to track digital user behavior comprehensively, reducing the accuracy of its insights and potentially causing slower revenue growth or customer churn.
  
• Similarweb's heavy reliance on web data, paired with slower adaptation to newer digital channels such as connected TV, voice interfaces, or changing digital platforms, may erode its relevance and prevent it from capturing new revenue streams, putting long-term revenue growth at risk.
  
• Consolidation and intensifying competition from larger, diversified analytics providers could subject Similarweb to sustained pricing pressure and threaten customer retention, ultimately impacting net margins and eroding long-term earnings power.
  
• Customer organizations increasingly building proprietary, in-house analytics solutions-enabled by decreasing cloud storage costs and sophisticated open-source tools-could lead to reduced enterprise demand for third-party digital intelligence platforms like Similarweb, pressuring both revenues and the company's addressable market over time.

Valuation

• The assumed bearish price target for Similarweb is $10.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Similarweb's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $17.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $402.1 million, earnings will come to $18.6 million, and it would be trading on a PE ratio of 69.5x, assuming you use a discount rate of 10.9%.
  
• Given the current share price of $9.13, the bearish analyst price target of $10.0 is 8.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.