Will Vimeo Continue To Buffer Forever?

Gap withdraws 2022 financial outlook


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Vimeo: Pivot Gone Wrong?

Aspiring SaaS player Vimeo (VMEO) went public over a year ago, and shares have lost nearly all their value. Along with slowing growth, it also faces multiple lawsuits in Europe for copyright infringement. Has the company’s move to pivot to a B2B enterprise backfired?

A Dangerous Assumption

Zoom and Vimeo have a similar story. Both cashed in on the pandemic’s stay-at-home trend and pulled subscribers to their platforms, thereby growing exponentially during the health crisis. Zoom’s shares jumped as much as 10x from its IPO price.

Last year, Barry Diller’s InterActiveCorp planned to take advantage of a market vying for growth stocks and announced Vimeo’s spin-off as a public company. The company’s shares began trading at ~$50 apiece and a price-to-sales ratio of 25x. Despite a double-digit drop on its trading debut, Vimeo commanded a market capitalization of $8.5B.

Unfortunately, Zoom & Vimeo made the cardinal (not the story we wrote on Thursday) error of assuming that this pandemic-aided growth will last forever. Investors headed for the exit as they did not see the exorbitant growth levels as normalcy returned. Shares of Vimeo and Zoom were hammered and continue to bear the brunt.

Vimeo originally started as an indie creator platform, becoming the preferred option for content creators to share their videos. Back then, YouTube did not have features like controlling where the videos could be embedded, which enabled artists to protect their work.

Earlier this year, Vimeo ended up hiking the prices of its video-sharing platform. Their deal was simple – pay up or leave! It asked a digital artist, paying an annual fee of $200, to cough up $3.5K for an upgraded plan. This sudden action of forcing loyal customers to pay for premium services and even threatening to delete their content led to many quitting the platform for good.

Today, Vimeo sees itself as a B2B solution, not the indie version of YouTube. It claims to offer enterprise-grade video capabilities and consumer-friendly UX integrated into a single platform. Companies like Williams Sonoma, Nike, Expedia, Gap, and Bayer are some that utilize Vimeo’s products.

Their flagship product, “Vimeo Enterprise,” is the company’s offering for large organizations sold through its sales force. However, customers of the platform claim that it suffers from impaired buffering and playback, thereby dampening the viewing experience.

Buffering…

Earlier, Vimeo’s video quality bettered YouTube. It could also handle high-quality videos and maintain its finer details more accurately. However, YouTube improved on every parameter, from video quality to viewing experience & UI. The fact that YouTube remains free while customers need to pay Vimeo proved to be the last nail in the coffin.

The company’s revenue, which grew over 50% when it went public, has now dropped to the mid-teens. Despite revenue beating estimates in Q2, current quarter guidance disappointed. The company expects revenue growth of 5% in Q3, half of the consensus expectations of 10%. It expects an adjusted EBITDA loss of between $3M – $5M. The management is hopeful of nearing EBITDA breakeven in Q4. Another sign of worry for Vimeo is its margin profile. Last year, operating margins were a negative 9% which has now dropped to a negative 20%.

On the bright side, Vimeo’s gross margin increased to 76% from 73% last year. It has over 9K paying sales-assisted customers, representing 35% of its Q2 revenue. Newly launched products like their interactive video capabilities are finding traction with acceptance from companies like Estee Lauder & Splunk. Revenue increased 10% in July, while subscribers grew 2%. Vimeo currently has 230M users, over 1.7M paid subscribers & over 100B video views.

With the company still trying to figure out the direction ahead, it announced trimming 6% of its workforce. CEO Anjali Sud wrote to employees about this decision, which, according to her, had to be taken after “careful consideration.” As of 2021, Vimeo had over 1.2K full-time employees.

Vimeo also finds itself in a soup over alleged copyright infringements. An Italian court fined the company $8.6M for failing to remove copyrighted content from its platform. An Italian broadcaster, Mediaset, claimed Vimeo allowed copyrighted TV content to publish on its platform and failed to remove it as per Italian law. Last week, a jury upheld the 2019 verdict.

The company must also ensure that no new unauthorized content is uploaded on the platform again. On failing to comply, it will have to pay €1K for each offense and a penalty of €500 for each day the video remains accessible on Vimeo’s website. It has also lost its safe harbor provision in the ruling.

Vimeo started as one business and wants to become another but now finds itself in no man’s land after eroding massive investor wealth. Until the company finds its path at the earliest, it may continue to buffer for the foreseeable future, and we all know how investors react when something takes too long to buffer!

Market Reaction
VMEO ended at $6.32, up 1.28%.

Company Snapshot 📈

CAH 6.32 +0.08 (+1.28%)

Analyst Ratings (7 Analysts) BUY 43%  HOLD 57%  SELL 0%


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Later Today 🕒

  • JinkoSolar Holding Co Ltd. Earnings (JKS)
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Today’s Fun Fact

70 percent of the U.S.-based Vimeo’s audience is outside the US. Vimeo has 170 million viewers worldwide, with 42 million viewers in the U.S.

 


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