Goldman Sachs Initiates Similarweb Coverage, Product Upgrades Inspire Bullish Take

Goldman Sachs analyst Adam Hotchkiss initiated coverage on Similarweb Ltd SMWB with a Buy rating and a price target of $16.

Similarweb’s historical growth and profitability challenges have generally driven a growth-relative discount for the company’s shares to similar growth software companies, Hotchkiss noted. But recent go-to-market initiatives (i.e., Similarweb 3.0) are likely to drive sustainable mid-to-high teens growth with improving margins.

This likely will lead to share price outperformance over the next 12 months, he adds.

Although 4.5 times represents a discount to software peers growing 10-20% annually (~6.6 times), Hotchkiss noted this as justified by Similarweb’s sub-scale profitability profile and higher-churn customer model, which creates greater volatility risk to numbers and growth.

The analyst’s 4.5 times multiple is a premium to Similarweb’s three-year historical trading average, reflecting the company’s recent revenue acceleration, upside risk to numbers from data-as-a-service optionality, and improving profitability. Based on his current estimates, the price target implies ~29 times EV/FCF.

However, he noted that minor variations in cash profitability could create swings in free cash flow valuation, given the company’s sub-scale profitability.

Hotchkiss projected fourth-quarter revenue of $65.4 million and adjusted earnings per share of 5 cents.

Price Action: Similarweb stock is up 6.86% at $13.02 at last check Wednesday.

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