Deep Dive: Vimeo
(Ryan) What they do: Their mission is to provide professional quality video for all. Vimeo provides an all in one video software solution for businesses. Could be for individuals to, but mostly applies to businesses. It’s a SaaS platform with a comprehensive video tool set.
So you can make a free account or there are tiers of subscriptions. And the subscriptions provide extra storage space, banner ad-free viewing, unlimited channel distribution, private link sharing, and a bunch of other useful stuff.
But once you’ve signed up, you’ve got all you need to create a professional grade video. You can upload your own and edit it, or you can create one right from their canvas with different templates, you can share and collaborate on videos, then you can share the videos to wherever you want (website, blog, social media, or even a connected TV app). There’s also analytics and monetization tools users get as well.
In one simple phrase, it feels like a Wix or Shopify but for video creation.
(Ryan) History: Vimeo has a fascinating history. The company was actually founded in 2004 and acquired by IAC shortly after. For those that don’t know IAC is famous for incubating companies when they’re young then spinning them off once they mature (Lending Tree, Expedia Group, Match Group, and now Vimeo).
It was first founded by Jake Lodwick and Zach Klein but was designed to essentially be a higher quality YouTube. It was the first video sharing site to support consumer HD. And so they had this great toolset for video building and editing, but they kept trying to be a demand aggregation platform until about three or four years ago when they started to focus on video development and distribution for businesses. And that’s also when they hired Anjali Sud to come on as CEO from her previous role as director of marketing. Then less than two weeks ago Vimeo was spun-off and now trades on the public market.
Industry/target market can be divided into two buckets: businesses with more than a few dozen employees who want easy in-house video communication, and businesses/people who want to easily produce video marketing material or content (our sponsor 7investing is a good example of the last two)
Competitors include Restream, Sprout Social, and then YouTube in a sense. People who use YouTube may also be customers of Vimeo, but some people like to stick with just that platform
Competitors could also include Zoom, Teams, Webex, all of these types of products, although it is slightly different than Vimeo
From online source there are 17.6 million businesses just in the U.S. Vimeo is targeting some of these, but not all
(Ryan) Management and Ownership: Complicated ownership structure because of the spin-off
They have a dual class share structure
Looks like T Rowe Price and Vanguard will both have a large chunk
88% of the shares outstanding were owned by IAC before the spin-off, but following completion of the listing those IAC shareholders receive 1.62 shares of Vimeo.
Didn’t look like any executives owned a substantial amount of shares.
Anjali Sud is the CEO. She’s 37 and seems to have a good vision for the company. Has kind of a unique route to winding up as the CEO.
Her total compensation in 2020 was around $1.2M, but 2021 will be very different because she got a bunch of options in the spin-off.
CFO is Narayan Menon. He was brought on as CFO in 2020 and was granted a big signing bonus (more than $4 million). Before that he served and different financial leadership positions at Prezi and Intuit.
Joseph Levin (Barry Diller’s prodigy) will be chairman of the board following the spin-off.
Market cap of $6.77 billion based on 165.9 million shares outstanding. This may change as there are 26.7 million various IAC dilutive securities that could turn into Vimeo shares post merger
P/S of 18.9
P/GP of 26
Just extrapolating last quarter’s financials since this is a subscription business
(Ryan) Earnings: 2020 numbers, then Q1
2020 revenue was $283M, up 45% YoY
Operating loss of $41M
OM of -14.5% vs. -31% last year
Basically breakeven OCF
$89.4M in revenue, up 57% YoY
72% gross margin
And $5M in operating losses (shrinking)
Now have 1.6M subscribers, up 25% YoY
ARPU grew 27% YoY
Been having a lot of success within enterprises too. Enterprise revenue increased 100% for the 3rd consecutive quarter, and net revenue retention was above 110%
(Brett) Balance sheet and liquidity:
(caveat watch for any changes post spin, although it doesn’t look like IAC is throwing $3 billion in debt onto the balance sheet like with Match Group)
$316 million in cash
$190 million in total liabilities, $148 million of which is in deferred revenue. So extremely light balance sheet
All debt and notes due to related parties (i.e. likely IAC) are gone from 2020
Anecdotal Evidence/Customer Stories:
(Ryan) I looked at it and it could be useful for the Arch Capital website.
(Brett) Not much besides seeing it more and more on company websites and that it never seems to be buggy. Online reviews were pretty bad though
(Ryan) Scale to some extent. Anjali Sud mentioned this in an interview. It’s growing more competitive, but there’s a lot of depth to their solution and because they already have a huge established client base it allows them to be the low-cost provider. Being in the leadership position they’re able to provide the best customer value proposition. Also they’re platform agnostic unlike YouTube.
(Brett) freemium model. 200 million users vs. smaller amount of paid subs, and 60% of paid users start out as free. At first look I’m thinking of it similarly to someone like Wix or MongoDB
Future growth opportunities:
(Ryan) Showcase. This is a product or feature that allows content creators to build customized channels or sites. And if you subscribe to pro ($20/month) or higher you can build connected TV apps. In 2019 they said they were working on live streaming classes, not sure if this has been embedded yet. So if you’re a yoga instructor, you could teach classes that are subscription based and students could stream it right from their living room.
(Brett) Enterprise revenue. It is the segment that management talks about the most and is growing the quickest right now, revenue up 100% in Q1 and retention rate of 110%. Makes sense as this is a big market opportunity for them plus the pandemic likely gave them a boost. Could definitely be hitting the middle of the S-curve right now
Highlights and lowlights:
(Ryan) Highlights: Just about every business in the world could use video in one way or another and Vimeo apparently has 200 million registered users. Obviously the economics are good and the enterprise adoption is validation of the platform. Lowlights: They have to not only market their product, but they have to find a way to make people forget what they once were. Secondly, it’s easy to pattern match back to old IAC spin-offs and think this one will be a success, but this is a bit different and could be a bit more fragmented. I think a lot of investors are actually doing that.
(Brett) Highlights: Great unit economics, coming from a conglomerate with a strong track record, and long runway for growth, minimal competition, the fact that even Amazon uses it shows the strong value proposition Lowlights: Worried that a one-time pandemic bump may lead to higher churn over the next few years, but other than that was very hard to find a lowlight for the underlying Vimeo business
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Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.