Data Integration With Bloomberg Will Unlock Gen AI Opportunities

Key Takeaways

• Strategic investments in R&D and market teams aim to leverage AI opportunities and capture demand for increased revenue growth and innovation.
  
• Increased multiyear contracts demonstrate strong customer retention, ensuring predictable revenue, and enhancing margins alongside anticipated growth acceleration.
  
• Aggressive spending on AI and go-to-market teams could pressure short-term profits, with FX challenges and managerial issues posing risks to revenue growth and margins.

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.

• The integration of Similarweb's digital data into major financial data platforms like S&P Global and Bloomberg Terminal suggests increased demand for their data products, potentially driving revenue growth through expanded customer bases and new revenue streams.
  
• The company's strategic investment in R&D, specifically to enhance data collection and adapt products for the Gen AI world, aims to capitalize on emerging AI-related opportunities, likely boosting future revenue and innovative product offerings.
  
• Similarweb's ramped-up investment in go-to-market teams, including hiring and upskilling sales forces across geographies, is expected to capture demand, increase sales efficiency, and contribute to accelerated revenue growth in the coming years.
  
• With an increase in multiyear contracts to 49% of ARR, up from 42% last year, Similarweb is demonstrating strong customer retention and stable long-term revenue streams, potentially enhancing net margins by ensuring more predictable and scalable revenue.
  
• The anticipated acceleration in growth through the second half of 2025, as indicated by the guidance, suggests strategic investment is expected to yield a return in increased revenue, potentially enhancing earnings performance as the company scales its operations.

Similarweb Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Similarweb's revenue will grow by 16.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.6% today to 4.7% in 3 years time.
• Analysts expect earnings to reach $18.4 million (and earnings per share of $0.22) by about May 2028, up from $-11.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 99.3x on those 2028 earnings, up from -54.7x today. This future PE is greater than the current PE for the US Software industry at 31.6x.
• Analysts expect the number of shares outstanding to grow by 3.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.3%, as per the Simply Wall St company report.

Similarweb Future Earnings Per Share Growth

Risks

• The company's incremental $20 million spend on R&D and go-to-market teams in response to AI opportunities is expected to reduce short-term operating profit, which could impact earnings.
  
• FX pressures have already caused revenue growth and profitability headwinds in the most recent quarters, suggesting future revenue and net margins could be adversely affected if these trends continue.
  
• The Q4 execution was softer than expected, potentially due to managerial issues and changes in the go-to-market strategy, posing a risk to achieving revenue targets.
  
• Despite increased spending to capture growth opportunities, the company only forecasts a 15% revenue growth increase for 2025, similar to 2024, suggesting limited immediate revenue acceleration.
  
• While pursuing AI opportunities, the nascent state of this market and the need for new investments in data capabilities could entail higher execution risks, impacting potential earnings.

Valuation

• The analysts have a consensus price target of $15.125 for Similarweb based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $390.5 million, earnings will come to $18.4 million, and it would be trading on a PE ratio of 99.3x, assuming you use a discount rate of 10.3%.
• Given the current share price of $7.57, the analyst price target of $15.12 is 50.0% 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.