Vimeo: A Promising Story, But the Numbers Paint a Different Picture
Vimeo has expanding margins and an attractive valuation, but decelerating growth in core top-line metrics and increasing competition is enough for me to sit and watch from the sidelines.
Key points
Vimeo has undergone a transformational shift from a video streaming platform to a B2B SaaS business that empowers creators and enterprises to produce professional video content.
Vimeo has reported consistent deceleration in top-line metrics (revenue, ARPU, number of paid subscribers, and net dollar retention rate) throughout the back half of 2021.
Management backtracking on 5-year revenue guidance of 30% CAGR after one quarter raises yellow flags about their ability to accurate forecast their business.
Vimeo trades on an attractive valuation of 5.8x forward EV/sales and 8.0x forward EV/gross profit, and a base case model forecasting 22.5% revenue CAGR through to 2026 and an exit EV/sales multiple of 5.0x generates a 13.5% IRR.
Vimeo faces competitive threats from Canva, Zoom, Adobe, Apple, and Microsoft Teams.
I give Vimeo a ‘neutral’ rating at the current price.
How Vimeo came across my radar
Vimeo (NASDAQ:VMEO) is a Software as a Service (SaaS) business that provides tools to help content creators and enterprises produce professional video content. The business went public via an IPO on 25th May 2021 and was met with a healthy dose of skepticism from investors, dropping 13% on their first day of trading.
Vimeo first came across my radar as a potential investment opportunity in August 2021 after Dennis Hong from ShawSpring Partners added Vimeo to his portfolio in Q2 2021 (ending 30th June 2021). For some context, Dennis manages a highly concentrated portfolio of 5-10 high-growth businesses (both public and private) and has noted on several podcast appearances that he requires a 30% expected IRR for inclusion into the portfolio. While his fund performance is not public information, his funds under management has grown from $153m in Q3 2019 to $959m in Q3 2021, with some big wins coming from early investments in Sea Limited (NYSE:SE), Square/Block (NYSE:SQ), and Match Group (NASDAQ:MTCH). Dennis is also a long-term investor in InterActiveCorp (NASDAQ:IAC), the media and internet holding company which spun out Vimeo for their IPO. Thus, it is probable that Dennis received his Vimeo shares from his long-term holding in IAC, however, he held the shares through Q3 2021 (ending 30th September 2021) despite a significant drop in share price, suggesting he seems some unrealised value in the business.
The three shades of Vimeo
Vimeo was founded in 2004 by two developers at Connected Ventures, the parent company of CollegeHumor (a website which produced comedic video content), with the goal of becoming a popular video streaming platform. The name ‘Vimeo’ was designed as a play on the words ‘video’ and ‘me’. Vimeo floundered during their first few years of operations and gained little traction. However, in 2006, IAC acquired a majority interest in Connected Ventures and therefore became the majority owner of Vimeo. After Alphabet (NASDAQ:GOOGL) purchased YouTube in 2006 for $1.65b (regarded as expensive at the time, but is now regarded as one of the great all-time acquisitions), IAC invested more resources into Vimeo to help them compete with YouTube as a video streaming platform. To differentiate from YouTube, Vimeo chose not to place ads on videos, but instead charged content creators a small subscription fee to upload their videos on Vimeo with a range of features, such as HD graphics. Thus, YouTube chose to monetize the viewer through ads, while Vimeo chose to monetize the content creator. As is common knowledge now, Vimeo never gained the same degree of traction as YouTube and become regarded over time as the more ‘indie’ video streaming platform that attracted longer-form creative digital content, such as documentaries.
From around 2013-2017 (exact start/end dates are hard to find), Vimeo pivoted into developing original video content to compete with Netflix (NASDAQ:NFLX). During this period, Vimeo aimed to become a central hub that attracted ‘alternative’ video content and offered to purchase original content for exclusive distribution on Vimeo. While this pivot seems like business suicide in 2021, it is important to note that the video streaming market was much less saturated around 2013. Indeed, neither Disney Plus nor Apple TV had launched so there was a much less ruthless competitive environment than we see in 2021.
This first pivot into developing original content received much less public and media attention, and most people still think of Vimeo in their first act as a “poor man’s cousin to YouTube” (to quote a friend to whom I mentioned offhand I was writing an article on Vimeo). However, since 2017, Vimeo has undergone a transformational second pivot from a video content platform to a SaaS business that empowers creators and enterprises to realise the value of video content in both internal and external communication. This transition was led internally by Anjali Sud, current CEO, who joined Vimeo as their Director of Marketing in 2014 after previous roles at Time Warner and Amazon (NASDAQ:AMZN). When Anjali joined Vimeo, it was undergoing its first pivot and she found herself championing an internal movement amongst a minority of employees to abandon their investments in original content. Instead, Anjali (and others) noticed that a significant number of customers were using Vimeo not for distribution purposes, but to utilise their back-end tools which assisted them in producing professional video content. Said another way, other video content platforms like YouTube had large/engaged audiences and excellent distribution, but did not offer much back-end support for creators during the video creation and editing process. Thus, there was an opportunity for someone to provide this back-end infrastructure for video creators. Anjali was tasked with testing the feasibility of this new model and was shortly promoted to the CEO role in 2017 after Vimeo officially abandoned their investments in original content. Following this pivot, Vimeo is no longer a direct competitor to YouTube, the content aggregator behemoth which generates revenue from ads.
Vimeo’s product offering
Vimeo provides tools that helps creators and enterprises produce high-quality video content. This quote from Anjali Sud (CEO) on a Bloomberg interview in February 2020 nicely summarises this mission:
“Every business, every brand, whether you’re a restaurant, a fitness owner, or a real estate agent needs to use video to get their message out on the internet - and it’s really hard and we're building tools to make that easier”.
Vimeo generates subscription revenue when customers sign up to use their tools to produce video content. These tools are platform agnostic, which means that videos created with Vimeo software can be uploaded onto a whole host of platforms, including YouTube, Instagram, and Facebook (NASDAQ:FB). Vimeo has also signed partnerships to integrate their tools within a range of other established platforms, including Asana (NYSE:ASAN), TikTok (private), Shopify (NYSE:SHOP), LinkedIn (NASDAQ:MSFT), and Patreon (private). Thus, Vimeo operates as the back-end infrastructure powering the production of professional video content across a range of common software and social platforms, with clear use cases from individual creators to large-scale enterprises.
Here’s a non-exhaustive list of services that Vimeo provides to facilitate both internal (i.e. within an organisation) and external communication (i.e. from an individual or organisation to the general public):
Edit a video using their video editing software.
Organise live virtual events, such as an interactive conference or product launch (Vimeo Events).
Send a screen recorded video message to colleagues instead of a meeting or email (Vimeo Record).
Store video content (e.g. training workshops or videos) in a secure content hub for internal use within an organisation, with automatic transcriptions that are easily searchable (Video Library).
Use video analytics software to assess which uploaded videos are gaining traction, how people are watching the video (e.g. phone or computer), and when people stop watching a given video.
Vimeo’s business and pricing model
Vimeo has a freemium SaaS model with three plans available to potential customers:
Free version.
Self-serve version (Plus, Pro, and Premium Plans).
Enterprise version (Enterprise Plan).
Although Vimeo does not break out the exact contributions from self-serve versus enterprise plans, Anjali Sud noted on their Q3 earnings call that around 70% of revenue comes from self-serve plans while the remaining 30% comes from enterprise plans. Vimeo’s core business focus is expanding their base of enterprise customers as (a) these plans have the highest margins and (b) their penetration in this market segment is very low.
Vimeo has an incredible 230m registered users, but only 1.66m of these are paying customers (< 1% penetration), and less than 7,000 of these are enterprise customers (< 0.001% penetration). While these headline numbers are slightly misleading because a large portion of these 230m registered users would be people who signed up at some point since 2004 to watch or upload a video - and are thus inactive users - Vimeo’s low conversion from free to paid users still leaves a lot of room for further growth.
While Vimeo has only offered enterprise plans for a few years, they boast an impressive list of customers, including Intuit (NASDAQ:INTU), Spotify (NYSE:SPOT), Amazon, SAP (NYSE:SAP), The New York Times (NYSE:NYT), Expedia (NASDAQ:EXPE), eBay (NASDAQ:EBAY), and NASDAQ (NASDAQ:NDAQ). On their relationship with NASDAQ, Vimeo’s IPO was actually live streamed on the NASDAQ website using Vimeo’s own video software. Thankfully for Vimeo the live stream didn’t crash!
Vimeo has both a top-down and bottom-up sales approach. They have been making significant investments to build out a direct enterprise sales team, but also gain bottom-up traction as small teams within an organisation use Vimeo’s tools as part of a free or self-serve plan, and then upgrade over time to an enterprise plan as Vimeo’s software becomes embedded into the organisation’s workflow. This is a similar playbook that has been successfully adopted in other B2B SaaS businesses, such as Asana, Slack (NYSE:CRM), and Atlassian (NASDAQ:TEAM). Early signs suggests that Vimeo’s bottom-up sales approach is gaining traction; more than 70% of Vimeo’s enterprise customers begin on either a free or self-serve plan.
In terms of pricing, Vimeo still uses a legacy storage-based pricing model, but Anjali Sud publicly announced in their Q3 earnings call that they will be transitioning to a per-seat/user pricing model for enterprise customers over the coming quarters. While not explicitly stated, it appears that Vimeo has been undercharging large enterprise customers, so this shift to a per-seat pricing model could have a material impact on Vimeo’s revenue and margins. See Anjali Sud’s comments during their Q3 earnings call:
"Over the next few quarters, we've moving from a storage-based to a per-seat pricing model, that will better align willingness to pay with the success of our customers. Now it's worth calling out the magnitude of this change for Vimeo, shifting how we price is a foundational change, and it may be a volatile period as we test our way into success. But this, in my mind, is the final missing piece in Vimeo's B2B transformation, one that can unlock conversion, retention and expansion levers that weren't available to us before. It's an essential part of our long-term success, and we are fully committed to executing it."
However, price increases in large enterprise customers could also lead to higher rates of churn, which would manifest in a lower net dollar retention rate for enterprise customers, so this will be a core metric to watch over the coming quarters. If Vimeo is able to retain most of their customers through this shift in pricing model, it would demonstrate the stickiness of their platform and could provide a nice short-term tailwind to revenues and margins. Nonetheless, I would expect some lumpiness with revenue numbers in the coming quarters.
Decelerating growth in core top-line metrics is concerning
From my perspective, Vimeo’s core top-line business metrics are (a) total revenue, (b) enterprise revenue, (c) average revenue per user (ARPU), (d) number of paid subscribers, and (e) net dollar retention rate.
Total revenue
Vimeo operates on a $400m annualised revenue run rate, but has reported consistent decelerating growth in each of these top-line metrics throughout the back half of 2021 against strong COVID-19 comps. Vimeo was reporting year-over-year (YoY) revenue growth rates of 50-60% from November 2020 to March 2021, but this has consistently dropped each month to 26% YoY growth in November 2021. On a quarterly basis, Vimeo reported YoY revenue growth of 57% in Q1 2021, 43% in Q2 2021, and 33% in Q3 2021, demonstrative of a clear deceleration in growth. Quarter-over-quarter (QoQ) revenue growth was 7% from Q4 2020 to Q1 2021, 7% from Q1 to Q2 2021, and 4% from Q2 to Q3 2021.
Enterprise revenue
Revenue from enterprise customers, while growing at a faster rate than non-enterprise revenue, has also sharply decelerated throughout 2021. Vimeo does not break out specific enterprise revenue numbers or growth rates, but instead provides ranges for growth rates. Here are the reported YoY growth rates for enterprise revenue:
Q1 2021: > 100%.
Q2 2021: > 80%.
Q3 2021: > 60%.
ARPU and number of paid subscribers
The trend in ARPU and number of paid subscribers follows a similar pattern of deceleration to the above revenue numbers. Vimeo reported consistent YoY growth in ARPU of 26-27% from November 2020 to March 2021, which has since decelerated to 12% YoY growth in November 2021. From Q2 to Q3 2021, ARPU increased from $240 to $242, representing 1% QoQ growth.
Total paid subscribers grew at 24-26% YoY from November 2020 to March 2021, and has decelerated to 11% YoY growth in November 2021. From Q2 to Q3 2021, total paid subscribers grew from 1.63m to 1.66m, representing 2% QoQ growth.
Net dollar retention rate
Vimeo only reports net dollar retention rate - a core metric for SaaS businesses - for enterprise customers, not for the whole business. Similar to enterprise revenue, Vimeo’s reporting for enterprise net dollar retention rate is not exact with ranges reported, rather than specific figures. Here are Vimeo’s enterprise net dollar retention rates over the past five quarters:
Q3 2020: > 110%
Q4 2020: > 110%.
Q1 2021: > 110%.
Q2 2021: > 100%.
Q3 2021: > 100%.
While a net dollar retention rate above 100% indicates that existing enterprise customers are expanding their use of Vimeo’s software offering over time, this figure in absolute terms is well below numbers reported in well-regarded B2B SaaS businesses which have been stellar performers over the past 24 months, including:
Snowflake (170%+) (NYSE:SNOW).
Twilio (130%+) (NYSE:TWLO).
Datadog (130%+) (NASDAQ:DDOG).
Cloudflare (120%+) (NYSE:NET).
Asana (120%+) (NYSE:ASAN).
I believe there is room for enterprise net dollar retention rate to increase over time to the 105-115% range as Vimeo continues to add additional services and directs more sales efforts towards upselling to existing customers. Anjali Sud noted on the Q3 earnings call that Vimeo is “seeing strong demand from enterprise customers who use multiple products”, with bodes well for future growth in net dollar retention rate. Moreover, Vimeo’s revenue pipeline for enterprises with at least 1,000 customers was up more than 150% YoY, which should flow through to top-line metrics over the coming 12-24 months.
Strong (and improving) margin profile
From my perspective, Vimeo’s core profitability and cash flow metrics are (a) gross margin, (b) operating margin, (c) operating cash flow margin, and (d) free cash flow margin.
Gross margin
While top-line metrics are decelerating, Vimeo’s margin profile is improving with each successive quarter. Gross margin has expanded from 67.7% in Q1 2020 to 74.8% in Q3 2021 as enterprise revenue (which is higher margin than non-enterprise revenue) becomes a larger part of the business. Vimeo’s medium-term guidance for gross margin is 75%, so I would not expect to see this same rate of increase in gross margin over the coming quarters.
Operating margin
Vimeo has reported seven consecutive quarters of negative operating margins, primarily due to investments in research and development, and sales and marketing. Nonetheless, barring a large increase in operating expenses in Q2 2021 (coinciding with lots of one-off costs related to the IPO), the trend appears that Vimeo is getting closer to reporting GAAP operating profits. Vimeo’s CFO (Narayan Menon) also expects EBITDA margins to hit 20% over the next 3-5 years.
Cash flow margins
While quite lumpy from quarter to quarter, Vimeo has reported positive operating and free cash flow margins in 4/7 quarters since Q1 2020, which is impressive given that Vimeo only pivoted to their SaaS model in 2017. I think it will take another 12-24 months to get a sense of what Vimeo’s operating and free cash flow margins could be at scale. Overall, I continue to expect high investments in research and development to build out additional software offerings, and sales and marketing to drive awareness among enterprise customers.
Strong net cash position
Vimeo has a fortress balance sheet with $341m cash and no debt after their IPO in May 2021. Given their expanding gross margins and positive operating and free cash flow on a trailing 12 month basis, I see no urgent need for Vimeo to raise additional capital in the next 12 months, barring a major acquisition.
Management backtracking on 5-year revenue CAGR guidance raises yellow flags
In their first earnings call as a public company, Vimeo management put forth 5-year revenue CAGR guidance of 30% through to 2026. At the time, this was impressive guidance and implied that the trend of decelerating revenue growth would moderate around the 30% mark. However, in their Q3 earnings call, Vimeo management pushed this revenue guidance back a few quarters and told investors to expect around 25% revenue growth in Q4 2021 and sub 30% revenue growth in 2022.
"Great stuff is happening beneath the surface, product expansion, customer validation, the right leading indicators. While our path to 30% growth is delayed, we believe we are laying the right foundation to win in the long term. So we're not leading off our pace of investment to achieve our vision. And internally, we are as ambitious as ever." (Anjali Sud, Q3 earnings call).
This downgraded revenue guidance was very disappointing and casts doubt over management’s ability to accurately forecast their business operations even just a few quarters into the future. One of the fundamental responsibilities as CEO of a public company is to build trust with investors by demonstrating their ability to accurately forecast business operations. While this might seems superficial and tangential to long-term value creation, it is an important step in building credibility among both investors and analysts. If Vimeo is unable to accurately forecast their revenues 6-12 months into the future, what makes me confident as an investor that they will be able to predict demand from enterprise customers in 2024 or 2025, and make appropriate long-term operational decisions based on this expected demand? A backtrack on revenue guidance this early into Vimeo’s journey as a public company raises yellow (but not red) flags about management’s competence and trustworthiness.
Limited inside ownership amongst Vimeo senior management
While senior executives at IAC have significant stakes in Vimeo, inside ownership is less notable amongst the senior management team at Vimeo. Indeed, the CFO and COO do not appear in the top 100 shareholders, indicating a < 0.1% ownership stake. Below I have documented some of the key players in Vimeo and their respective shareholdings:
Barry Diller (Chairman of IAC) owns 7.00% of shares (around $212m).
Joseph Levin (CEO of IAC) owns 3.24% of shares (around $98m).
Anjali Sud (CEO of Vimeo) owns 0.26% of shares (around $7.9m).
Mark Kornfilt (President and Chief Product Officer of Vimeo) owns 0.21% of shares (around $6.3m).
Attracting talented executives from renowned B2B SaaS businesses
On 6th December 2021, Vimeo announced a number of new executive hires which bodes well for their future growth among large enterprise customers. Eric Cox, who worked at Adobe (NASDAQ:ADBE) for more than a decade and oversaw a $4-5b book of business in their Adobe Creative Cloud and Document Cloud segment, was hired as Vimeo’s first Chief Revenue Officer. Crystal Boysen, who served as the Global Head of People at Canva (private) and was responsible for the expansion of their enterprise sales team, will come on board as Vimeo’s Chief People Officer. On the surface, these appear to be excellent hires and indicate Vimeo’s ability to attract top executive talent from renowned B2B SaaS businesses, like Adobe and Canva.
A compelling valuation for a high-margin SaaS business
Vimeo has suffered a horror start during their first six months as a public company with shares down more than 67% since their IPO in May 2021. As of 27th December 2021, Vimeo has a market cap of $3.04b with an enterprise value of $2.70b based on a net cash position of $341m. According to Crunchbase, Vimeo raised $300m in January 2021 as part of a private equity round at a pre-money valuation of $5.70b … the public markets can be a cruel place.
This below graph demonstrates the substantial compression in Vimeo’s forward EV/sales multiple from around 15x at the time of IPO to around 6x in December 2021.
Vimeo’s last 12 month (LTM) revenue is $369.3m, valuing the business on a trailing EV/sales multiple of 7.3x and a forward EV/sales multiple of 5.8x if we assume 25% revenue growth in 2022.
On a gross profit basis, Vimeo has LTM gross profit (GP) of $268.5m, valuing the business on a trailing EV/GP multiple of 10.1x and a forward EV/GP multiple of 8.0x if we assume gross margins are unchanged in 2022 (which is conservative given the recent gross margin expansion). It is extremely rare to find a publicly listed SaaS business with double-digit revenue growth rates trading for 8x forward gross profit, particularly when combined with positive operating and free cash flow.
Given (a) the large QoQ fluctuations in Vimeo’s operating and free cash flow margins and (b) that Vimeo is still in the growth/expansion stage of their business lifecycle after pivoting to a SaaS model in 2017, I have not attempted to value Vimeo based on currently profitability metrics. Vimeo reports that their TAM is $70b, so it makes sense for Vimeo to invest aggressively in both sales and marketing, and research and development to capture as much market share as possible in the absence of an established competitor. However, I would be much more comfortable with Vimeo’s negative operating margins if they had a higher enterprise net dollar retention rate (e.g. > 120%) and was reporting accelerating growth in core top-line metrics.
Below I have modelled expected IRRs over a 5-year period from an investment in Vimeo at the current share price under (a) conservative, (b) base case, and (c) aggressive assumptions. I have calculated expected IRRs based on a forecasted 5-year revenue CAGR and an exit trailing EV/sales multiple. As with all my valuation work, I build conservatism into both the growth rate and exit valuation multiple assumptions to provide additional room for error. As such, any multiple expansion offers pure upside to these forecasts.
Conservative scenario
The conservative scenario assumes that (a) Vimeo has a 5-year revenue CAGR of 15% (half of their forecasted revenue guidance of 30% CAGR) and (b) their valuation multiple decreases more than 50% from 7.3x trailing EV/sales to 3.5x trailing EV/sales. This assumes limited traction with enterprise clients and continued deceleration from current growth rates. In this scenario, Vimeo generates an expected IRR of -0.8%.
Base case scenario
The base case scenario assumes that (a) Vimeo has a 5-year revenue CAGR of 22.5% and (b) their multiple decreases more than 30% to 5.0x trailing EV/sales. This assumes a slight deceleration in core-top line metrics from current growth rates. In this scenario, Vimeo generates an IRR of 13.5%, which is quite attractive in this market.
Aggressive scenario
The aggressive scenario assumes that (a) Vimeo has a 5-year revenue CAGR of 30% (in line with their previous forecast of 30% revenue CAGR through to 2026) and (b) their multiple decreases slightly to 7.0x trailing EV/sales. This assumes a slight re-acceleration from current growth rates, owing to the continued onboarding of large enterprise customers and an expansion of net dollar retention rate. In this scenario, Vimeo generates an IRR of 28.9%.
Watch the growing competition in this space
While the expected IRRs for the base case and aggressive scenarios are attractive, Vimeo faces some tough competitive threats from both new entrants and incumbents.
Regarded as the global leader in video-conferencing solutions, Zoom (NASDAQ:ZM) offers a number of similar features to Vimeo, including hosting virtual conferences and team meetings, and sending screen recordings as internal communications to colleagues. However, Zoom lacks the back-end tools that Vimeo provides, such as sophisticated video editing software, video analytics, and seamless integration with popular social media platforms, like Instagram and TikTok. Microsoft Teams is also a valiant competitor in the video-conferencing space that bears mentioning.
Canva, the global leader in online graphic design solutions, launched their own suite of video software solutions in October 2021. Among other things, creators can use Canva Video to edit videos, post across a range of social media platforms in the right format, and send screen recordings to colleagues. What is more concerning for Vimeo is that Canva Video will offer a number of these features in their free option as part of a similar freemium model, representing a major competitive threat to Vimeo’s free and self-serve plans. Canva has a global user base of more than 60m monthly active users, so Canva Video could become a material growth driver for them in the coming 12-24 months. It will be interesting to observe the traction of Canva Video over the coming quarters and to monitor online articles comparing the relative pros/cons of Vimeo and Canva Video. At this stage, I am not certain that Vimeo has a sufficient moat to ward off competition from Canva if Canva expanded their product pipeline to offer further similar features to Vimeo.
Adobe and Apple (NASDAQ:AAPL) also have substantial presences in the video editing software space with Adobe Premier Pro (Adobe) and Final Cut Pro (Apple). Both tools have attracted thousands of online tutorials, are relatively easy to learn, have tremendous brand recognition, and offer excellent online customer support.
Overall, none of these competitors offer the same breadth of video software solutions that Vimeo does (unsurprising given that this is Vimeo’s core focus), but all aforementioned competitors have better brand recognition than Vimeo. For creators or smaller enterprises seeking simple software solutions to organise a group meeting or edit a video to upload onto a social media page, it is probable that Zoom, Microsoft Teams, Canva, Adobe, or Apple will come to mind before Vimeo for most creators and enterprise customers, meaning that Vimeo will need to continue to aggressively invest in sales and marketing to build brand awareness.
Conclusion
To summarise, here are the most promising aspects of Vimeo as a potential investment:
Video has become a much more commonplace medium for communication since the first COVID-19 outbreak in 2020 and should continue to grow in adoption over the coming decades as the developing world becomes more digitised.
Anjali Sud appears to be a visionary CEO driving a strong corporate culture of product innovation and has an excellent 91% approval rating on Glassdoor.
The shift from storage-based to per-seat pricing for enterprise customers could result in a material uplift in revenue, ARPU, margins, and enterprise net dollar retention date.
Vimeo has expanding gross margins, positive operating and free cash flow, and a solid net cash position of $341m.
Vimeo’s current valuation of 5.8x forward EV/sales and 8.0x forward EV/gross profit is cheap compared to other B2B SaaS businesses. A base case scenario assuming a 5-year revenue CAGR of 22.5% and an trailing EV/sales multiple of 5.0x at exit generates a 13.5% IRR.
However, I am concerned about the following:
Continued deceleration in core business metrics throughout the back half of 2021, including revenue, total paid subscribers, ARPU, and enterprise net dollar retention rate.
Vimeo management does not break out specific figures for enterprise revenue, enterprise revenue growth, or enterprise net dollar retention rate.
Low enterprise net dollar retention rate (in the low 100% range) compared to other B2B SaaS businesses.
Management walking back their 5-year revenue guidance of 30% CAGR after just one quarter as a public company.
Limited inside ownership amongst Vimeo senior management.
Increasing competition from incumbents (e.g. Zoom, Microsoft Teams, Apple, Adobe) and new entrants (e.g. Canva) with stronger balance sheets and easier access to capital.
Overall, Vimeo is an interesting B2B SaaS business that has undergone a radical change in business model from a video streaming platform to providing tools to help creators and enterprises produce professional video content. They are led by Anjali Sud, an ambitious CEO with a clear mission for Vimeo to become the global leader in video software solutions. However, the aforementioned concerns are sufficient for me to label Vimeo with a ‘neutral’ rating, despite the 67% drop in share price since IPO. At this stage of their journey as a public company, I am happy to observe from the sidelines and gain more clarity about their future growth rates and competitive position before initiating a starter position. While the current valuation is attractive on a relative basis to other public SaaS businesses, it is possible that Vimeo’s revenue growth rates continue to decelerate and gross margins plateau at the current 75% level. You do not want to be left holding the bag with a second- or third-tier SaaS business that, on a surface level, seems to be cheap, but is struggling to gain product-market fit and expand their relationships with large enterprise customers. Time will tell if this is the case with Vimeo.