Vimeo: Likely To Remain Rangebound

Summary

• Today, we take a deeper look at Vimeo, Inc., a New York City-based company that provides video tools.
• Vimeo just reported Q4 results that beat top and bottom line expectations and offered up initial FY2024.
• A post-earnings assessment around Vimeo follows in the paragraphs below.

The role of the artist is to ask questions, not answer them.”― Anton Pavlovich Chekhov.

Today, we put Vimeo, Inc. (NASDAQ:VMEO) in the spotlight. The video tools provider and Busted IPO just posted Q4 results after the bell on Wednesday. This closed out FY2023, a year which the stock fell by just under 10% in what was an up year for the overall market. What lies ahead for Vimeo in FY2024?

Company Overview:

Vimeo, Inc. is headquartered in New York City. The company provides the video tools through a software-as-a-service, or SaaS, model. This enables its customers to create, collaborate, and communicate with video on a single platform. These capabilities give clients everything they need to make, manage, and share videos. The stock currently trades around four bucks a share and sports an approximate market capitalization of $675 million.

The company has two core parts to its business: Vimeo Enterprise and Self-Serve & Add-Ons. The former is oriented to markets using videos to acquires, employees using videos internally and media businesses monetizing video directly with their customers.

Fourth Quarter Results:

Vimeo, Inc. posted its Q4 numbers on February 21st. The company delivered GAAP earnings of a nickel a share, this was six cents a share above the consensus. This resulted in net income of $8 million for the quarter. Revenues rose ever so slightly on a year-over-year basis to $106 million, more than $3 million north of expectations. The company also beat estimates with its Q3 earnings report.

The Self Serve & Add-Ons business continued to show slight revenue declines.

The revenue from "Other" revenue sources fell sharply from the same period a year ago.

This was offset by sales growth from Vimeo Enterprise, resulting in slight revenue growth on a year-over-year basis.

The company has been focused on reducing costs for most of 2023. It dropped advertising spending by some 20% during the year as but one example. These efforts have born some fruit as the company had adjusted EBITDA of $13 million in the fourth quarter to close out 2023 on a high note. This was up from $6 million in the same period a year ago. More impressively, Vimeo delivered positive free cash flow of $10 million in the quarter.

Management laid out conservative initial guidance for FY2024. They are projecting that revenues will fall between four to eight percent in the coming fiscal year to a range of $385 million to $400 million. This should result in a net operating loss of $5 million for the fiscal 2024 year.

Analyst Commentary & Balance Sheet:

Since early November, Truist Financial and Wells Fargo have both reissued Buy ratings on the stock with identical $7 price targets. Meanwhile, TD Cowen ($6 price target) and Piper Sandler ($5.50 price target) have maintained Hold ratings and Jefferies ($4 price target) downgraded the stock from a Buy to a Hold. Given management's initial guidance for FY2024, I expect the analyst community to remain mixed around Vimeo's near-term prospects.

Just over two percent of the outstanding float in the shares is currently held short. Vimeo ended the fiscal 2023 year with just over $300 million in cash and marketable securities on its balance sheet. The company's cash balance grew $27 million for the fiscal year, and Vimeo has no long-term debt.

Verdict:

Vimeo, Inc. posted a solid Q4 that beat bottom and top line expectations. However, guidance for FY2024 was light, as the mean analyst firm revenue estimate for this coming fiscal year was around $418 million. The analyst consensus is also for an eight cent (GAAP) per share loss in FY2024.

While the past couple of quarterly earnings reports have beaten expectations, it is hard to find a compelling case to own Vimeo, Inc. shares at current trading levels other than its robust balance sheet. Sales are expected to be down this fiscal year and the company is expected to post a small loss for FY2024. Given this, the shares are likely to remain range bound in 2024 much as they did throughout 2023.

Once Vimeo returns to growth, it will be a story to circle back on, hopefully in 2025.

Artists are people driven by the tension between the desire to communicate and the desire to hide.”― Donald Woods Winnicott