1 'Strong Buy' Small-Cap Software Stock With More Than 33% Upside Potential

With businesses racing to harness the power of artificial intelligence (AI), the demand for cutting-edge software solutions is skyrocketing. From streamlining workflows to generating actionable insights, software is now the beating heart of digital transformation. As companies compete to stay relevant in an AI-first era, they're pouring investments into tech solutions that keep them ahead of the curve.

According to Gartner’s (IT) latest projections, global software spending is set to surge by 14% to $1.2 billion in 2025, up from 11.7% growth in 2024. With investment in AI-related projects serving as a major catalyst for this jump, this relentless growth signals a booming market where innovative software companies have a unique opportunity to thrive. And one software company that is poised to ride this wave is Similarweb Ltd. (SMWB).

As the company rapidly expands its AI-powered digital intelligence solutions, Similarweb equips businesses with real-time insights into online trends, helping them navigate rapidly changing markets and stay competitive. Plus, with a consensus “Strong Buy” rating, this small-cap company stands out as a top-notch investment candidate amid a continued rise in demand for innovative software solutions. Here’s a closer look at this name.

About Similarweb Stock

Founded in 2009, Israel-based Similarweb Ltd. (SMWB) is a dynamic web analytics company driving business success by revealing online trends and empowering data-driven decision-making. The company’s vital digital data and intuitive analytics tools enable businesses to develop effective strategies, enhance customer acquisition efforts, and maximize monetization opportunities, ensuring they stay ahead in the competitive digital landscape.

Valued at a market cap of around $679 million, shares of this rising star in the web analytics arena climbed almost 72.8% over the past year and 63.8% on a YTD basis, outshining the broader S&P 500 Index's ($SPX)39.5% return over the past 52 weeks and 22.5% YTD gain.

Similarweb Beats Q2 Earnings Projections

Similarweb delivered impressive Q2 earnings results in early August, which soared beyond Wall Street's expectations on both the top and bottom lines. Total revenue skyrocketed to $60.6 million, reflecting a strong 13% year-over-year increase and marking the third consecutive quarter of growth acceleration. The company reduced its GAAP loss to just $0.01 per share, a significant improvement from the $0.12 per share loss in the same quarter last year.

Adjusted operating profit per share reached $0.07, bouncing back from an adjusted operating loss of $0.04 in Q2 of fiscal 2023. Additionally, Similarweb generated $6.3 million in free cash flow, a stark contrast to the negative free cash flow of $2.8 million recorded in Q2 of fiscal 2023. By June 30, the company’s customer base surged to 5,034, marking a 17% increase compared to the previous year, underscoring the strong demand for Similarweb’s data analytics solutions.

While reflecting on the Q2 performance, CFO Jason Schwartz expressed enthusiasm over the company's accelerating revenue growth, attributing it to new customer acquisitions and improved retention. He highlighted that their operational performance reflects a strong commitment to disciplined execution, with Similarweb achieving its fourth consecutive quarter of operating profit and generating an impressive $16 million in free cash flow in the first half of fiscal 2024.

Given these strong numbers, which surpassed management’s expectations, the company upwardly revised its revenue and non-GAAP operating profit outlook for the full year 2024. For fiscal 2024, Similarweb projects total revenue to range between $246 million and $248 million, alongside an estimated non-GAAP operating profit ranging from $13 million to $15 million.

Looking forward to the company’s upcoming fiscal 2024 Q3 results, management anticipates total revenue to land between $62.5 million and $63 million, showcasing approximately 15% growth year over year at the midpoint of this range. Additionally, the company projects its non-GAAP operating profit for the quarter to land between $2.8 million and $3.2 million.

Analysts tracking Similarweb project the company’s GAAP loss to shrink a notable 89.5% year over year in fiscal 2024, and are looking for SMWB to swing to a profit of $0.01 per share in fiscal 2025.

What Do Analysts Expect For Similarweb Stock?

On Oct. 21, Needham initiated coverage on Similarweb with a “Buy” rating. Analyst Scott Berg highlighted that Similarweb is emerging as a leader in the web analytics sector, boasting a robust and unique data asset that it can monetize through five distinct SaaS applications.

He cited accelerating revenue growth, driven by recovering demand and decreasing down-sell activity, along with “rapidly improving profitability” as key factors behind his “Buy” recommendation and $11 price target. However, the analyst also noted potential challenges, including geopolitical tensions and the perception of web and data analytics spending as non-essential.

Overall, Wall Street remains highly bullish on SMWB stock, with a consensus “Strong Buy” rating overall. Out of the nine analysts covering the stock, eight advise a “Strong Buy,” and one suggests a “Moderate Buy.”

The average analyst price target of $11.75 suggests a potential upside of around 33.4% from current levels, while the Street-high target of $16 indicates that SMWB could rally as much as 81.6% from here.

More Stock Market News from Barchart

• IDEXX Laboratories' Q3 2024 Earnings: What to Expect
• Earnings Preview: What to Expect From Electronic Arts' Report
• What You Need to Know Ahead of PG&E's Earnings Release
• Stocks Rally as Chip Stocks Jump on Western Digital Earnings

On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.