We came across a bullish thesis on Vimeo, Inc. (VMEO) on High Growth Investing’s Substack by Stefan Waldhauser. In this article, we will summarize the bulls’ thesis on VMEO. Vimeo, Inc. (VMEO)’s share was trading at $6.79 as of Nov 8th. VMEO’s trailing P/E was 33.95 according to Yahoo Finance.
Highlighting the company’s sector and industry, a technician working on a complex SaaS in a technology lab.
Vimeo reported robust Q3 2024 results, exceeding both guidance and analyst expectations, marking a significant step forward for the company. Total bookings surpassed $100 million, matching last year’s level, while revenue reached $105 million, only slightly down from the previous year. Impressively, Vimeo achieved a net profit of $9 million and generated $21 million in free cash flow. These strong financials reflect the growth trajectory of its three business segments, though each has evolved differently post-pandemic.
The Enterprise segment has emerged as Vimeo’s star performer, driven by its appeal to medium and large enterprise customers. Bookings in this segment grew 39% year-over-year to $25 million, accounting for 25% of total bookings, while revenue surged 42% to $22 million. Vimeo now serves 3,800 Enterprise clients, reflecting a 26% growth in customer count, with annual revenue per customer up by 11% to over $23,000. This segment’s success highlights the potential for Vimeo to position itself as a leading B2B video solutions provider, with Enterprise’s growth likely to drive company-wide revenue gains in the near future.
In contrast, the Self-Serve & Add-Ons segment, historically Vimeo’s largest business, continues to see declines as the COVID-19 boom fades. Bookings for this segment fell 8%, but the impact on revenue was mitigated by price increases, resulting in a milder 6% revenue decline. Vimeo’s decision to cut advertising expenses by nearly 50% also contributed to this stabilization, with a smaller subscriber base counterbalanced by higher prices. This segment still represents two-thirds of Vimeo’s total revenue, showing resilience even amid market challenges.
The “Other” segment, mainly composed of Vimeo’s OTT product, saw another year-over-year decline of over 20% as legacy products were phased out. Despite this, OTT now contributes 82% of the segment’s revenue, an increase from 62% last year, and has maintained stable bookings. This segment is set to stabilize further as older products are discontinued, potentially leading to an eventual rebranding solely as OTT, enhancing transparency and focus.
Looking ahead, Vimeo anticipates a turnaround in 2025, with management expecting the company to return to growth, benefiting from sustained profitability achieved this year. The Enterprise segment alone is projected to grow 35%, which would drive overall revenue growth by 9%, while the Self-Serve segment aims for stability with potential upside from new AI-powered features. Vimeo’s profitable positioning, supported by a 15% cash flow margin in the first nine months of 2024, suggests it could achieve high single-digit revenue growth in 2025, with potential for double-digit expansion.
Despite recent share price gains, Vimeo remains undervalued with an enterprise value of $800 million and an EV/Sales ratio below 2. Management’s insider purchases further underscore confidence in Vimeo’s prospects. As the company pivots towards profitable growth, underpinned by cost efficiencies and AI initiatives, a re-rating could materialize as investor sentiment shifts, supporting a potential share price target of $10 or more by late 2025.
Vimeo, Inc. (VMEO) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held VMEO at the end of the second quarter which was 26 in the previous quarter. While we acknowledge the risk and potential of VMEO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VMEO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.