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Investing.com - Morgan Stanley (NYSE:MS) downgraded SEMrush Holdings, Inc (NYSE:SEMR) from Overweight to Equalweight on Tuesday, while reducing its price target to $9.00 from $13.00. The stock, currently trading at $7.30, has declined 47% over the past six months according to InvestingPro data.
The downgrade comes as the investment bank identified weakening demand in SEMrush’s downmarket segments, particularly among freelancers, which account for approximately 20% of the company’s Annual Recurring Revenue (ARR). This weakness is offsetting growth in the company’s Enterprise SEO solution. InvestingPro data shows the company maintains impressive gross profit margins of 81.4% and achieved revenue growth of 22.2% in the last twelve months.
Morgan Stanley noted that ARR growth slowed to 15% in Q2, below the firm’s initial expectation for sustained 20% growth. The bank expressed concern that investors might view the downmarket pressure as evidence of AI displacement risk for SEMrush’s core SEO products.
Despite these challenges, Morgan Stanley believes SEMrush shares are already pricing in bearish scenarios, trading at approximately 1.5x EV/S and 0.10x growth-adjusted, compared to small and mid-cap SaaS peers at 4x and 0.40x respectively.
The new $9 price target reflects a 2x EV/S multiple, which Morgan Stanley indicates is in line with the low end of customer enablement peers undergoing strategic turnarounds or facing AI-related concerns, and represents a discount to the group median of 3x.
In other recent news, SEMrush Holdings Inc. reported its second-quarter 2025 earnings, revealing a notable shortfall in earnings per share (EPS). The company posted an EPS of -$0.04, significantly missing the forecasted $0.08. Despite this, SEMrush achieved a revenue of $108.9 million, marking a 20% increase from the previous year. Following these results, both Needham and KeyBanc have adjusted their price targets for SEMrush to $12.00, while maintaining their respective Buy and Overweight ratings.
The price target reductions come after SEMrush trimmed its full-year revenue guidance by $6 million at the midpoint and missed annual recurring revenue (ARR) estimates. Additionally, the company experienced a decline in paying customers for the first time. SEMrush is currently focusing on its strategic shift towards enterprise and AI segments. These developments reflect the company’s ongoing challenges and adjustments in its business strategy.
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