Vimeo, Inc. (NASDAQ:VMEO) Q4 2023 Earnings Call Transcript

Vimeo, Inc. (NASDAQ:VMEO) Q4 2023 Earnings Call Transcript February 21, 2024

Vimeo, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and thank you for joining Vimeo’s Q4 and Full Year 2023 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 in 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 CFO, Gillian.

Gillian Munson: Hello, and thank you for joining Vimeo’s Q4 2023 earnings Q&A session. I’m Gillian Munson, CFO, and I’m happy to be joined by Adam Gross, our Interim CEO. You can find our Q4 ’23 shareholder letter and additional financial materials on our Investor Relations website. As a reminder, in this session, we will talk through some non-GAAP terms and you can find the closest GAAP terms and reconciliations in our shareholder letter. Before we jump into Q&A, a few points on the quarter. In 2023, Vimeo made significant strides in improving profitability while also showing bookings, revenue and some encouraging product metric improvements in the second half of the year. We delivered solid results in Q4 with revenue flat year-over-year, adjusted EBITDA of $13 million and $10 million in free cash flow, ending the year with over $300 million in cash.

As we look at our bookings, a couple of key items stand out. Vimeo Enterprise continued its strong double-digit growth trajectory with net revenue retention of 103% and some impressive customer wins in the quarter. In self-serve and add-ons, we saw some green shoots that our bet on product-led growth is the right one, partial offsetting top of the funnel pressure, conversion and AOV improved. And most exciting for us, the team delivered retention improvements in all cohorts in the self-serve business and in aggregate. Looking ahead to 2024, we continue to believe that Vimeo has a lot of upside potential that’s being masked by the post-pandemic market environment and our own proactive efforts to put Vimeo on better financial footing. We have been and are continuing to move to more efficient product-led growth with increased investment in R&D, improved go-to-market systems and processes and an eye to cost containment, especially in advertising spend.

When we net out the factors impacting our bookings and revenue, we expect they will both decline in 2024 as we work our way to a healthier Vimeo. At the same time, the strength of our business model remains evident. We believe that we can maintain adjusted EBITDA profitability in 2024 despite the impact of roughly $5 million in cash compensation substituted for equity grants. We are making strategic changes to the business that we believe will lay the foundation for healthier, more profitable growth in the future and Adam and I are looking forward to talking with you today. With that, let’s open up the line for your questions.

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Q&A Session

Operator: Our first question will come from Tom Champion at Piper Sandler. Tom?

Tom Champion: Hi, thanks very much and good afternoon. Maybe Adam to begin with you. So within bookings, clear progress on the enterprise side. I’m wondering if you could just talk about how you’re thinking through self-serve and the add-on segment, just as you manage to go forward, some of the push-pull between kind of upper funnel friction and maybe improved retention. Maybe how are you thinking through that part of the business? And then maybe for Gillian, the letter talks about lower ad expense after reducing this line item in ’22 and ’23. How are you looking to further rationalize this? And why does that make sense given the top line implications? Thank you.

Adam Gross: Yes. Great. Thank you for the question. and I’ll see if I can cover the first part of that and hand off to Gillian. One of the things that makes Vimeo unique is we have tens of millions of people interacting with our products every month. And that’s just an enormous differentiation for us. We have the second largest or most popular video player on the market. We have all of these people experiencing and understanding our value proposition every day. And as we’ve talked about in the letter, we really think there’s an opportunity to take that organic traction to take those product experiences and better and more efficiently convert them into free users and ultimately into paying customers. We think that’s why product investment is important.

Why what you’ve already seen us release in terms of improvements to the overall product experience to our checkout flows, as you mentioned, focus on both activation and retention. These are things that we are heads down actively working on and optimizing against and are optimistic about for the future. And I’ll let Gillian speak to some of the more specifics.

Gillian Munson: Yes. So as it relates to the advertising spend, I think what you’re really seeing is us be more confident. So when we look at the business and we look at the green shoots we see in terms of what product-led growth can do for the business, we’re feeling embolden to take a little bit more risk in getting the business more quickly to the kind of business model we think is the right answer long term. So when we look at advertising spend, we dropped at about 20-some-odd percent in 2023 after dropping it in the teens in 2022. We’ll probably drop it more this year, and that’s going to make room for our product investment that we think is going to get us to the right metrics to get us to growth over time. When you look at Vimeo as a whole, there’s a lot going on at the top line from bringing down the other products, both in bookings and revenue so that we get that rationalized and then the investments we want to make in self-serve and Vimeo Enterprise over time.

And so what you’re really seeing us do is actually because we’re feeling good about the business actually proactively take a little bit more risk and we’ll bring down advertising more, get ourselves to the right profitable mix, invest in the product and then move forward from there.

Operator: Our next question will come from Cory Carpenter at JPMorgan. Cory?

Cory Carpenter: Good afternoon. I have two. Just maybe, Gillian or Adam, if you could just expand on – you mentioned, I think, twice now the green shoots you’re seeing on the product side. So you can just expand a bit on what you’re seeing there? And then, Gillian, just as we think about your ’24 outlook, it feels like it certainly is a big impact from the Other segment, which you’re kind of managing down on purpose. But maybe if you could just help set our expectations for our what you’re expecting across enterprise, self-serve and Other, that will be helpful.

Gillian Munson: While I take those numbers questions, and I’m going to pass it to Adam a little bit more on the product. So let me start first with the guidance. So when you look at the business, there’s both the bookings and then what follows is revenue. So in terms of how we’re thinking about the business in the booking side of the business, as we get Vimeo Enterprise bigger, its rate of growth will probably slow. And then in the Other segment, we continue to think that’s going to decline as we manage that business down to basically being OTT. Now OTT is a real opportunity for us. But for right now, we view it as more optionality. We have a great team running OTT. So then you get to the self-serve business, which is the biggest piece of the business.

There, what we’re doing is, and you see in the guidance, is that cut to the ad spend adds to the environment we are in, that will probably cause that to go down as we look at 2024, but it’s going to get us to a healthier place. And so then that gets me to the revenue. Revenue trails the bookings. So you’ll see that come through. The biggest delta in the revenue as I look at 2024, is actually the Other segment where we continue to bring that down. Those bookings are followed by that revenue. And then the trends I talked about in terms of Vimeo Enterprise and self-serve follow. The reason we think this is the right way to look at the business is those green shoots. So a couple of things. When we look at the rate of new bookings, particularly in the self-serve business relative to the rate of cuts we’re making in the ad dollars, there is a positive relation there.

In other words, the new bookings are falling less than the ad dollars are falling. And that is a trend we started to see in the second half of last year. We are seeing it in ’24. That makes us feel confident that the product is starting to do exactly what we want it to do, which is sell itself. Other metrics that we are looking to is conversion of that traffic to new sales has been coming up. AOVs and ARPUs are looking better. And really exciting in the quarter for us is those retention trends we mentioned in the letter, and we particularly focus in on self-serve, where we saw increased retention across the board and in all cohorts. That’s a big piece for us in terms of thinking about how the product is performing for us and how we kind of put it all together.