Why Vimeo Stock Could Jump 25% Higher

IPO stock photo | by lendingmemo_com

Vimeo Inc. (Nasdaq: VMEO) just became the 11th company to go public under Barry Diller's InterActiveCorp (IAC), and shares plummeted right out the gate from $52.08 to $44. That's in part thanks to IAC shareholders and other insiders selling, and not because Vimeo is a bad company.

The video hosting and sharing platform that's only four years into its rebrand came out of its first day as a publicly traded company with a market value of $8.4 billion, less than the $10.6 billion it anticipated. J.P. Morgan analyst Cory Carpenter's valuation had Vimeo at $9 billion, so is the stock undervalued or overvalued? Is it a buy?

The company's public listing comes on the heels of posting a 57% sales growth in Q1, when it marked adjusted operating profits at about $1.8 million, marking the third straight quarter in the green. We have reason to believe that dip is precautionary – it's not unusual for a stock to drop right after its IPO. In fact, it creates opportunity for investors.

When CEO Anjali Sud pivoted Vimeo's strategy from a viewing destination or media platform to a software-as-a-service (SaaS) company, she knew what she was doing. The 16-year-old company is four years into this strategy that targets filmmakers, professional video creators, and businesses – from small mom-and-pop businesses to large Fortune 500 companies that are jumping on board the age of video content.

Rather than competing with Netflix and the $17 billion it has to spend, Sud saw an opportunity to target the businesses that now require video content without losing its existing users.

This new strategy is what sets Vimeo apart from YouTube or Instagram, and finding that niche is what will help it sustain and grow in the future.

Here's what the tech stock is doing to separate itself from the pack, plus a Vimeo stock price prediction.

How Vimeo Pivoted Against Competitors

While YouTube attracts creators and content to its platform, it aims to keep viewers engaged with its site to spend more time on it because it makes money from advertising. That's why you get those 15-30 second commercials on monetized videos on YouTube.

Vimeo has never made money from advertising; it's always been a subscription product monetizing through actual creators who pay to have unlimited access to Vimeo's creative software and platform. It's not focused on which people spend time on the site or the content it presents; in fact, Sud says it doesn't want to be an entertainment destination at all.

Its goal is helping any business or organization use video the same way it uses text or image as an effective way to communicate. It simplifies the user experience and the process of creating content and distributing it.

What once required a crew of cameras, a script, professional editing software, and people to operate it all, Vimeo has compacted into a single user-friendly service. Vimeo's 1.5 million paying customers have access to a database of templates, AI, stock licensed footage, music, and about everything else you'd need to create video content. No longer do small businesses with small budgets have to pay thousands for constant video content that drives engagement but generally has a short shelf life.

Not only does Vimeo have a database of content that can be used to create, but it offers a live stream portal with specific paywall options, customer support, and e-mail support. That's basically everything needed to run a video business without worrying about the cost or technology needed to build such a service.

Vimeo is also designed for large companies and organizations like Rite Aid or Starbucks that use the service to securely broadcast CEO messages or HR training to stores all over the world. It's not the one-on-one experience you get with Zoom (that caps at 100 people in a meeting), it's more in tune with a digital TV studio. These Fortune 500 companies are able to broadcast to every one of their employees and stores simultaneously.

Is Vimeo Stock a Buy?

Its user base is growing – the SaaS currently has 200 million active users, 110 million of which have joined since 2019. There are a lot of factors going into that growth, a big one being the social climate presented by COVID-19. Similar to how companies like Zoom skyrocketed during social distancing, Vimeo had something that became a necessity for large businesses maintaining efficiency and communication, and small businesses trying to stay relevant in a time people are learning to work remotely and utilize digital alternatives.

While Zoom's astronomical spike from about $100 a share to $559 a share in a span of six months was largely a reaction to the COVID-19 environment and the immediate need for its platform, that was a very specific, temporary problem. It's evident by the stock's drop to $333 in the six months since its peak.

Although Vimeo had strong growth during the pandemic, don't expect it to drop as the economy reopens. Its last year is more telling about where it's heading: Revenue at a 57% gain, gross profits at a 67% gain, and improved operating losses from $17.2 million to just $5.6 million in the last year alone prove the company is a well-run business. Strong revenue growth paired with improving products indicates the company is growing not only what it's offering, but the business it's bringing in too.

Better yet, Vimeo posted a positive net income in Q1 of this year. Sud expects revenue to reaccelerate in late 2021 as investments in the company pay off this year.

It's estimated 86% of businesses use video as a marketing tool – that's up from 63% in 2017. During the pandemic, an overwhelming number of consumers said the amount of video content they watched online increased, and most marketing experts saw a positive return from video content. Ninety-six percent of them plan on increasing their budget specifically for video marketing.

Video marketing was already becoming a necessary tool for businesses. The pandemic just helped boost its growth. We could see up to 93% of businesses utilizing video marketing plans by 2022.

Only four years into its rebrand, Vimeo is niche but multidimensional. No longer the "indie version of YouTube," it's the world's all-in-one video solution. Before the pandemic, there was an increased demand for video content across the board, so we can't expect that to dwindle away now that the pandemic has subsided.

It's unclear why the initial reaction to the IPO sent it down 13% on day one, but expect the undervalued stock to bounce back. Vimeo is a safe buy now while it's "on sale" at $43-$46, with a target high of $56 over the next 12 months from Wall Street analysts.

Disclaimer: Any performance results described herein are not based on actual trading of securities but are instead based on a hypothetical trading account which entered and exited the suggested ...

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