Vimeo, Inc. (NASDAQ:VMEO) Q3 2024 Earnings Call Transcript

Vimeo, Inc. (NASDAQ:VMEO) Q3 2024 Earnings Call Transcript November 4, 2024

Operator: Hello and thank you for joining Vimeo’s Q3 2024 Earnings Live Q&A. Before we begin, a few comments. First, this session will be recorded and available on the Vimeo Investor Relations site later today. Second, we will discuss Vimeo’s outlook and future performance. These forward-looking statements typically may be preceded by words such as we expect, we believe, we anticipate, or other such statements. These forward-looking views are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. We’ve also provided information regarding certain key metrics, and our non-GAAP financial measures, including certain forward-looking measures. These should be considered in addition to, and not as a substitute for or in isolation from GAAP measures.

Additional information regarding Vimeo’s financial performance, including reconciliations with comparable GAAP measures can be found on our Shareholder Letter and Vimeo’s filings with the SEC, as well as in supplemental information posted on the Investor Relations section of our website. With that, I’ll turn it over to our CEO, Philip Moyer. Philip?

Philip Moyer: Thank you for joining us on our Q3, 2024 live Q&A video call. I’m hoping the highlights of our Vimeo REFRAME conference give you a sense as to why we are so enthusiastic about the market and the company that we’re a part of. It’s an exciting time for video, and Vimeo is better positioned than ever to support customers in their strategic video communications. A huge thank you to our new Chief Marketing Officer, Charlie Ungashick, and his team for putting on such an impactful and customer-focused event. We’re looking forward to building on our compounding momentum, and working to return Vimeo to growth. And with that, we’d be happy to take your questions.

Q&A Session

Operator: Our first question comes from the line of John Blackledge at TD Cowen. John?

John Blackledge: Great. Thanks. A couple questions. So the 3Q Enterprise revenue, and bookings were above our estimates. Could you just talk about the key drivers of the Enterprise momentum in 3Q, and as we rounded to 4Q and looking out into 2025?

Philip Moyer: There’s a couple of things, I would say. Thank you for the question. We’re really excited about the Enterprise business. Increasingly in the consumer marketplace, video has arrived for consumers and it’s arriving right now for the Enterprise. We like to say that on the public Internet, it’s about 82% of all the Internet is video. And we see that exact same trend coming into the Enterprise. And so a lot of the work that we’ve been doing in the business, to improve our go-to-market fundamentals, a lot of the work we’ve been doing around packaging and pricing. The AOV of our pipeline has gotten to a larger size. This already in Q3 and for Q4 and beyond. And I think that a lot of what we’re doing inside of the Enterprise business in particular the investments that we’re making in integrations and security, are really resonating with customers.

So doing a better job with fundamentals as well as innovating, and the market just, in general, has become – is a great place to be in.

John Blackledge: That’s super helpful. Just maybe one follow-up on the cost side. You guys have done a great job of cutting out costs. I’m just curious – over the last year or. So, just curious about the opportunities for investment in the business, as we look out into next year and next couple of years.

Gillian Munson: So the team here has done such a good job of getting us to a more efficient place. It’s kind of interesting as you look back. Run rate, we’ve taken about $100 million in operating expenses annually out of the business, and yet the gross profit dollars have stayed roughly the same, which has given us such good EBITDA results. But we think that the second piece of that story. Is that that’s making room for us to make investments and, because we see the opportunity is so big. Because we have such a strong balance sheet, we think we can apply more capital to investing in the business. So we will make some sizable investments as we look out into 2025. You already saw a small sequential increase in operating expense in Q3.

We – the pace of our hiring will really dictate how fast we can get money, to work inside the business. That said, and I think it is important to remind everyone, we firmly believe Vimeo should be a profitable business. So these investments will be sizable, but not the kind of thing that would put us in any kind of loss position.

John Blackledge: Thank you.

Operator: Our next question comes from Tom Champion at Piper Sandler. Tom?

Tom Champion: Great. Thank you. Hi, Philip and Gillian. Good to see you. Maybe to kick off the letter explicitly, states kind of an intention to return to bookings growth next year. And I’m wondering if you could, Gillian, maybe for you, could you unpack that a little bit for us. And like what are the components of that that you see that, really give you a lot of confidence that that’s going to take place? And for Philip, maybe to just ask one more, I’m wondering if you could talk a little bit on the products side, we saw the announcement on the Vision Pro app, and you’ve talked in the past about integrating AI, and new products and features. What are you doing? What’s the opportunity with kind of those two product sets on the Vision Pro side and within AI? Thank you.

Gillian Munson: Thanks, Tom. So let me just take the first one. So, we feel really good about our opportunity to grow the business next year. The math is really starting to work in our favor, and some of the things we’re executing inside the business, are also going to help us. So just start from the top. It’s kind of an interesting quarter, right? It’s a quarter of $100 million run rates. $100 million reduced reduction in operating expenses, on an annualized basis. And we had $100 million of annualized bookings in Vimeo Enterprise. That’s a meaningful amount. So the growth that we’re having in Vimeo Enterprise will continue, to have a positive impact on the overall growth. In fact, if nothing changes in any of the other products, we can grow Vimeo on the back of the Vimeo Enterprise product.

That said, we actually think there are other trends that are helping us. As we mentioned in the letter and we’ve talked about a little bit, we are really doing a lot of active work on pricing and packaging. And we think that will be a tailwind for the business as we look at next year. Secondarily, our OTT product, which has been run by a great team that’s done a great job stabilizing that product, is now a stabilizing factor in the business. And the other products that we’ve been deprecating will essentially fall away, having a much less impact on the business from a headwind perspective. And then just finally, as we turn to more of an investment mode, we are taking away some portion of the headwind we’ve caused by really cutting costs as much as we have.

And we really think what’s really interesting about that. Particularly as you look at our marketing spend, is that we’ve really pulled back on that, and we’ve taken the risk to do that. You’ve seen the strong stable gross margin that, we’ve even been able to hold up even in that environment. And the team has really learned about a lot about how to get to much more positive ROIs on our spend. And as we kind of go back into an investment mode, we think that can help as well. So, we feel really good about where we are, both from a math perspective, but then also some of the initiatives we have going on the company. And that’s what gives us the confidence to indicate that. We’ll come back at the Q4 earnings, with more details on how all this might lay out, but we want to make sure we highlighted that in the call.

Philip?

Philip Moyer: Yes, I am really excited about a lot of the announcements made around the Apple Vision Pro and a whole variety of announcements we made at REFRAME. One of the things that I think people were excited about artificial intelligence, and some of the work we’ve done around translations. We’re seeing tens of tens of thousands of minutes being translated already by the tool with this really small cohort of customers that we’ve opened this up to. And so, we’re excited about everything we’re doing in that space. We think we can make video even more intelligent like for enterprises, the ability to be able to ask a video a question, if I’m an e-learner or I want to find out what the CEO said in the last earnings call, or in the last town hall.

We think there’s a whole lot of things we can do in that space. We also think we can bring a lot of security to that space, like Enterprise is really requiring much higher-grade security for video. But as it relates to the format, like the Apple Vision Pro, a lot of people I think are focused just today on 4K. 8K is arriving, 16K is arriving, 32K formats are arriving. If you watch the Olympics, you saw 360-degree video, where it would circle around a basketball player or a gymnast. And so these spatial content formats, are starting to become normal in storytelling. And certainly, the Apple Vision Pro is an example of one of those kind of spatial, or virtual reality content types. Meta just released their Quest 3 for work. And so, we do expect that this is a new immersive format that we’re excited about partnering with all the VR companies.

And it’s just another example, where we’ve served these kind of formats as they’ve evolved in the past, and we’re showing again that we’re going to be serving these kind of formats in the future. What does that mean to the business? Well, most recently, we really modified packaging and pricing. We used to have these cliffs, and we used to have these walls, and we weren’t always. Sometimes we were making it hard for customers to buy, sometimes they couldn’t buy precisely what they wanted. But in a world where you have different formats, and you have different AI requirements, and different storage requirements. We now with packaging and pricing have really smoothed out, everything from free all the way up to million-dollar customers. We have mechanisms to be able to support customers in whatever they want to buy from us.

And so, we’re excited when you put all those things together, you were able to, I would say, monetize a lot of the innovations that we’re bringing to customers, and make it a lot easier for customers to buy from us.

Operator: Our next question will come from Youssef Squali at Truist. Youssef?

Youssef Squali: Thank you. Hi, guys. Nice quarter. So congrats on that. Philip, maybe can you just double-click on the Enterprise a little bit. So talks about packaging and pricing that have helped spruce up more demand. Can you talk about particular products within that, those optimization vectors that have had the most impacts on the quarter?

Philip Moyer: Sure. So, in the Enterprise space, we tend to serve organizations that are in the e-commerce or marketing area. So we have some customers, some very large e-commerce sites that joined us in Q3 that brought millions of videos to us, to be able to serve in e-commerce architectures. We then as well served a lot of organizations that are doing e-learning or internal communications. And we’ve got a number of great organizations that are doing precisely that with us. Volvo is a great example. And then we also have – what we call kind of our streaming or media business. And so, we’ve got organizations like Dropouts and Try Guys, we’ve got the Church of England, as an example. And so, we look at a wide array of use cases between all those organizations.

Now what we’re really seeing take hold with the Enterprise on – I think I mentioned this, is this enterprise-grade security. Last quarter, we actually had a very large customer. It was a pharmacy organization, where we were able to sign a BAA, a HIPAA agreement. And so that if a pharmacy was serving a particular user a video, after they received a particular medication. We were able to adhere to HIPAA for them, to be able to support that video distribution. That kind of enterprise-grade security is extremely important. At our user conference, we also talked about the fact that we’re going to be supporting a lot of data residency requirements over in Europe. That’s being received really, really well as well. We talk about the ability to be able to build what are called workspaces.

Where I can build clusters of videos by different business units inside of an organization, received really well. Integrations that we announced with Microsoft Teams as well as Google Meets, really important. We already support things like Zoom. So if you can imagine being a video repository, for all of those video conferences that you’re doing, or whether or not it’s a sales call, being able to do – be a video repository, it’s very important. And then as we look to integrations with organizations like HubSpot, as an example, if you want to do personalized marketing with video, we announced a number of innovations in that space, and then we’re wrapping all of this with things like AI translation. So if you’re a multinational organization, you have to communicate to all your customers, we’ve got great capabilities to translate.

The ability to ask video a question, to be able to get more information out of what was a static file, is now a live file for you. So when we go into Enterprises, all of those things are selling that ability to be able to use it with e-commerce, learning, media and to be able to make your assets is what you need them to be – in your company.

Youssef Squali: At a high level, who do you think is your closest comp for those kinds of services?

Philip Moyer: It’s really interesting, because I’ll see some organizations that might be focused just on e-commerce, or I’ll see a couple of organizations that are just focused on live events, or I’ll see some organizations that might try to be a little bit in the e-learning space. When I look across all the use cases inside of the Enterprise, sales, marketing, public relations, internal communications, e-commerce, customer support. We’re increasingly becoming the video repository for the Enterprise. We believe that we have the ability, to become one of the largest private video distribution platforms in the world. And we’re bringing that Enterprise-grade security, we’re bringing Enterprise-grade intelligence. We’re integrating with your existing systems, and we’re doing it with all the same ease of use that we had in our self-service business.

And so, I would tell you that I really – it’s very rare that we find an organization that is actually serving all the customer spaces that we’re in.

Youssef Squali: Okay. Thank you. And then Gillian, maybe – as you look at the outlook that you – and I know it’s broad outlook and I know you’re going to be providing more detail, or details later in January and February. But at a high level, does your growth outlook contemplate positive growth for the self-serving business? I think it was down 6% in Q3. Maybe actually talk about what that implies for Q4? And then, do you expect self-serve to basically show positive growth next year – at some point next year, not necessarily every quarter?

Gillian Munson: So we’re not guiding yet by business and certainly, we do need to continue to climb from where we are in the self-serve business. But I think what we’re trying to get across is that we do believe we can get that business back to growth, and we believe there are a number of factors like our pricing and packaging, like some of these exciting products we have coming out that, are going to help us get there. So we feel really positive about that. More details on that to come back at the year-end call. But I think it’s also really important to remember that the math is in our favor too. Meaning Vimeo Enterprise is now at such a size that it can help lift the business. And so any move to the positive, is also a positive for our business as regards self-serve.

And then that the OTT platform now the vast majority of our other is also in a good spot. In terms of the Q4 guide, obviously, we don’t guide bookings, we guide revenue. And if you do the math on the revenue, it would imply the growth rate comes down in Q4. That has to do with the fact that you have a waterfall of bookings into revenue. And as you may recall, a quarter or so ago, we had a down bookings quarter. So that’s got to flow through the revenue models. But we’re looking forward, and we really feel very excited about what’s in store for the company in 2025.

Youssef Squali: Super helpful. Thank you both.

Operator: With that, there are no further questions. I’ll hand the call back to Philip.

Philip Moyer: Well, again, I want to thank everybody for joining us today. I think it’s important to note that both Gillian and I, are both buyers of the stock in the previous quarter, and that we are outside of what are given to us as employees of the company. And we’re really excited about the trends that we see in the business. And we look forward to updating you again on our Q4 report.