Vimeo, Inc. (NASDAQ:VMEO) Q3 2023 Earnings Call Transcript

Vimeo, Inc. (NASDAQ:VMEO) Q3 2023 Earnings Call Transcript November 7, 2023

Gillian Munson: [Starts Abruptly] …putting 2023 in perspective, and during the year, we had three financial goals, delivering revenue declines in the mid single digits, posting adjusted EBITDA of $5 million to $10 million and returning to bookings growth in the second half. I’m happy to say that we believe we have line of sight to achieving or beating two of those goals. And while we aren’t all the way there on the third, we are making solid progress. Specifically, I’m happy to relay that we continue to believe that our revenue outlook is appropriate. And we have raised our EBITDA outlook to $27 million to $30 million. As for getting back to sustained bookings growth in the second half of the year, Q3 solid results aside, we now believe that our path there will be non-linear.

In Q4, we now expect bookings to decline in the mid single digits percentage wise. About half of the shift from Q3 to Q4 is expected to be driven by lumpiness in our other category. The rest will come from two factors. First, while self serve and add-ons showed improvement in Q3, we expect we will need more time still to return it for good. Moreover, as we look at our strategy, we are making overt changes to be more product than paid marketing driven, which may cause near-term headwinds on new bookings, but should be long-term healthier for our business. And in Vimeo Enterprise, despite strong growth prospects, the rate of growth is slowing in part due to some operational issues we saw in Q3 that resulted in pipeline softness. We are moving the business in the right direction despite a delay in delivering sustained growth and continue to believe that Vimeo will deliver growth overall, first driven by bookings.

Importantly, Vimeo has the financial staying power thanks to its strong cash generation in 2023, and its enviable balance sheet to invest appropriately to turn our business to growth posture. With that, we’re happy to take your questions.

Ken Goff: Our first question will come from Youssef Squali at Truist. Youssef?

Youssef Squali: Awesome. Can you guys hear me?

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Q&A Session

Gillian Munson: Yes. Hi, Youssef.

Youssef Squali: Hello. Congrats on a good quarter. So I guess the two questions I have, one is around the OpEx. You showed some really impressive improvement actually in gross margins to net 80%. Can you maybe speak to the drivers there and sustainability into Q4, same with OpEx? And then on bookings trends, I think you touched on it a little bit but particularly within self serve add-ons. Now that you are pushing the inflection back to positive for later, can you provide a little more color on what’s going on there? And how later is later? Are we expecting first half next year, second half next year? Any kind of color will be helpful. Thanks.

Gillian Munson: Okay. I’m going to try to remember all of those, because that was like four questions, but I’ll get there. So in terms of profitability, we had a great quarter on profitability, EBITDA of $13 million. I think our analysis would be that we may have swung a little bit too far towards profit in the quarter. So I wouldn’t want you to keep yourself at that kind of a margin moving forward. So let me break it to the parts you asked about. In terms of gross margin on a non-GAAP basis, that was about 80% in the quarter. That is really thanks to the work our team does in terms of hosting costs and other costs that go into the cost of goods sold in the quarter. And also we benefited from some healthy revenue in the quarter as well.

So when I look at that number, I think 79%, 80% is probably a good range for that. I don’t think that we see a ton of upside over where we were this quarter. That was a pretty good result there. On operating expenses, as you know, we’ve been bringing down costs through the course of the year. It was down about 11% in the quarter, it’s about 5% on headcount, and the rest coming from non-comp costs. I think we will continue to show discipline on cost. And our guidance reflects that as well for Q4. But we do want to make some investments against growth and probably we were a little bit too close on cost this quarter. So I wouldn’t expect us to hold it to this EBITDA margin level as we move forward in order to make the proper trade-offs there. I think on cost, Vimeo showed the kind of operating leverage this model can deliver.

And now Adam and I are working very hard to make sure we have the right balance of investment to growth over time. As it relates to the self serve business, we are making good progress there. The rate of bookings decline got better in the quarter. We are making progress, particularly in seeing good results in terms of our top of the funnel traffic. We have brought our AOV up fairly meaningfully over the course of the last year. Conversion is still not where we want it on new and we need to do some more work there. So it’s going to take us a little bit more time to get that sustainably to growth. And as you know from the math, self serve getting back to growth really helps us get to growth overall for Vimeo. And so we’re working on that. In addition, and we talked about this in the letter, it’s an important point to think about.

We, with Adam’s leadership, are really focused more on product led growth than paid marketing led growth. And as we make that transition, that might cause a little bit of incremental headwind on new bookings but we think long term will be super healthy for the business. In terms of picking a date certain for when we’ll get back to growth, we’re right in the middle of 2024 strategic planning. So don’t think it’s appropriate to pick a date there. But we’ll come back with guidance on that on the Q4 call.

Youssef Squali: Okay. All right.

Gillian Munson: Did I get them all? I think I got them all.

Youssef Squali: Yes.

Gillian Munson: Okay, good. Thanks.

Ken Goff: Our next question will come from Tom Champion at Piper Sandler. Tom?

Tom Champion: Great. Thank you. Good afternoon. Adam, I’d love to hear from you and just talk about your impressions kind of hearing the early going. You’re familiar with the business, but now you’re running it on an operating basis day-to-day. What are your current thoughts? The letter refers to kind of doing more with less or as a simplification process. That sounds sensible in the abstract, but just maybe you could contextualize for us what you’re seeing and what you’d like to do?

Adam Gross: Yes, thanks for the question. I appreciate that. So I think I am just about to start or just about to hit my second month anniversary here, as I mentioned in the letter, and it’s been really exciting to get a closer seat at the table, transitioning from the Board to interim CEO. Some my reflections are Vimeo has an enormous number of just really interesting assets. I mentioned this in the letter. But since I’ve taken this role and I started talking to people and our customers and people in the community, I’m yet to meet somebody who doesn’t know what Vimeo is, who doesn’t know who we are and more likely than not, doesn’t have a positive story or experience to tell about us? When you look at assets like that, when you look at how much traffic we have on to our various properties, measuring in the tens of millions amount, and you look at fundamentally the category we’re in, and how important video is and how strategic it is increasingly to enterprises, those are all really amazing assets.

I think what we’re talking about when we talk about focus and simplicity is how can we really bring all of those assets that we have together more effectively, so that one plus one equals three and a little bit more of an impactful way? Gillian referenced that with regards to our self serve strategy. How can we take advantage of the brand? How can we take advantage of the traffic we have? How can we take advantage of a product that we invested enormous amount in really making simple and delightful to use so that we’re better able to attract customers, get them engaged in the product, leveraging organic mechanisms, have them engaged as free users, and then over time convert them into paying customers? I think that’s an example of a strategy that we can take advantage of that will let us align our efforts better and ultimately yield more effective and customer acquisition and ultimately more growth.

Tom Champion: Great. Thank you.

Ken Goff: Our next question comes from Brian Fitzgerald at Wells Fargo. Brian?