On Thursday, Citi has changed its stance on Similarweb Ltd (NYSE:SMWB), upgrading the stock from Neutral to Buy and significantly raising the price target to $10.00 from the previous $6.00. The decision comes after a review of the company's fourth-quarter results, which indicated a positive shift in growth metrics and execution. Citi expressed confidence in Similarweb's potential for an accelerating revenue and profitability profile throughout 2024.
The firm acknowledged some reservations about the data-as-a-service sector, particularly concerning competition and renewal rates. However, Citi noted the current valuation of Similarweb shares, trading at approximately 2.1 times forward sales and generating accelerating double-digit growth alongside positive free cash flow, appears attractive. This valuation was deemed compelling, leading to the upgrade and a new price target that still values the company at just 2.9 times its expected 2024 enterprise value to sales.
In a comparative analysis, Similarweb was positioned favorably against its peer, ZoomInfo Technologies (ZI), with Similarweb's revenue multiple being roughly one-third of that of ZoomInfo. Moreover, Citi projects that Similarweb will experience two to three times stronger revenue growth with expanding margins. This analysis underpins the firm's recommendation for a pair trade, suggesting an Overweight position in Similarweb and an Underweight position in ZoomInfo.
Citi's revised outlook for Similarweb includes higher estimates, which have influenced the new price target. The firm's upgrade reflects a belief in the company's ability to sustain its profitability ramp and a view that the stock is currently undervalued. The positive assessment of Similarweb's fourth-quarter performance has been a key driver in the reassessment of the company's stock rating and value projection.
InvestingPro Insights
Following Citi's upgrade of Similarweb Ltd (NYSE:SMWB) to Buy, investors are keenly observing the company's financial health and market performance. According to InvestingPro data, Similarweb currently boasts a market capitalization of $591.73M, and despite being unprofitable over the last twelve months, with a P/E ratio of -20.13, the company has demonstrated significant revenue growth. The last twelve months as of Q4 2023 saw a revenue increase of 12.83%, with a gross profit margin impressively standing at 78.4%. This robust margin is indicative of the company's strong pricing power and cost management effectiveness.
Investors are also noting the company's stock dynamics, with Similarweb trading near its 52-week high, at 94.5% of this peak value. This could be influenced by the company's recent price performance, which has seen a 7.85% return over the last week and a remarkable 38.46% return over the last month. These figures are reflective of a positive market sentiment, which aligns with Citi's optimistic upgrade.
Two key InvestingPro Tips provide further insight into Similarweb's prospects. Firstly, analysts have revised their earnings upwards for the upcoming period, suggesting that the company's financial outlook may be improving. Secondly, Similarweb operates with a moderate level of debt, which could offer some financial flexibility as it seeks to capitalize on growth opportunities.
For investors looking to dive deeper into Similarweb's analytics, more InvestingPro Tips are available. The platform lists an additional 12 tips that could help in making a well-informed investment decision. To access these tips, investors can visit: https://www.investing.com/pro/SMWB. Moreover, by using the coupon code PRONEWS24, investors can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing them with an even greater edge in their investment strategy.
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