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Investing.com -- Morgan Stanley cut its rating on Semrush Holdings to Equal-Weight from Overweight after the company’s second-quarter results showed slowing growth and continued weakness in its small business and freelancer customer base.
The brokerage said a modest Q2 revenue beat was overshadowed by a reduction in full-year growth guidance, now expected at 18%, down 140 basis points. While the company maintained its full-year margin target at 12%, it had to absorb a $9 million FX-related expense.
Morgan Stanley (NYSE:MS) flagged the company’s downmarket exposure about 40% of ARR, with freelancers making up half that as a key drag, outweighing improving traction in enterprise SEO and early AI-driven products. It said the slowdown raises concerns that AI may be eroding demand in core SEO offerings.
There is a limited near-term catalysts to reaccelerate growth or displace bear narratives, according to analysts saying that recent earnings prints lacked the upside needed to shift sentiment.
The firm acknowledged that Semrush’s valuation is not demanding, trading at roughly 1.5 times forward EV/sales, but said without signs of improving customer retention or accelerating ARR growth, shares are unlikely to rerate.
It lowered the price target to $9 from $13, reflecting lower growth and continued uncertainty around AI’s impact.
Morgan Stanley concluded that while Semrush’s AI tools may eventually help reposition it for the future of search, they are not enough yet to outweigh ongoing pressure in its legacy customer base.