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Investment Thesis
The most recent closing stock price of $3.46 of Vimeo, Inc. (NASDAQ:VMEO) is far below its May 21, 2021 closing price of $57. I opine this B2B and B2C video sharing/hosting platform company will continue its decelerating momentum. The 1-week price performance of VMEO is -7.98%. It reinforces the nightmare 1-month (-21.18%), 3-month (-31.18%), and 6-month (-49.20%) falling IPO angel status of VMEO. Please do not average down on this stock. The sad news that Vimeo has lower revenue and lost 4% subscribers in November might only aggravate market negativity against VMEO. Vimeo’s subscriber count fell 3% in October and 1% in September. The negative momentum of VMEO could worsen further if management reports subscriber losses for FQ4 2022.
You should avoid VMEO because the massive fall from $57 to $3.46 has not erased its slight relative overvaluation against its Communications sector peers in my view. My sell recommendation for VMEO is also due to its prevailing unprofitability. It displeases me that Vimeo has only one quarter of profitably since Q1 2020. Vimeo had a net income of $3 million FQ1 2021. I think VMEO is a sell because it reported five consecutive quarterly net losses since May 2021 IPO. My takeaway is management needs to reduce operating costs and cost of revenue. Vimeo’s TTM revenue is only $433.6 million and yet its TTM operating expenses are $426.6. Vimeo is older than YouTube. Its 18-year-old brand power/recognition should inspire management to try reducing that TTM $105.5 million cost of revenue. Profitability is an especially important factor when I analyze stocks.
Post-IPO, Vimeo’s accumulated net losses are now $130.6 million. The full year outlook is that Vimeo will have an operating net loss between $100 million and $103 million. My takeaway is that after Vimeo has been around since 2004, it should have matured enough to be a consistent money maker.
As of Q3 2022, Vimeo has 1.6 million subscribers. The TTM revenue is $433.6 million. Divide this by 1.6 million subscribers and the average annual revenue per user [ARPU] or subscriber is $271. This is higher than 2021 ARPU of $243. It is perplexing that Vimeo is improving its ARPU and yet it continues to report quarterly losses.
Risks
The three consecutive months of subscriber losses could worsen the quarterly losses. Going forward, losing an average of $25 million per quarter could hurt the stock price. The TTM net operating cash flow is -$50.39 million. This company’s total cash is only $272.87 million. The -22.72% TTM net income margin is just bad for VMEO. It could lead to a cash shortage problem later. Having 1.6 million subscribers decline by 3 to 4% per quarter can only be
There is not much point in Vimeo doing 17% revenue CAGR if it continues to bleed. Consecutive quarters of net losses is why VMEO’s Piotroski F-score is only 5. It had an F-score of 8 in December 2021. The F-score is my top factor when evaluating stocks. No. 2 is profitability and no. 3, growth. VMEO has already failed my profitability factor. It is also fast falling my F-score requirement. It has also failed my growth stock metric that a company should be able to do 18 to 20% revenue growth.
The other risks against VMEO comes from technical indicators. I use simple, easy to understand indicators to gauge the broad emotion of investors. The Relative Strength Index score of VMEO is bearish at 37.80. It is well below the neutral score of 50. It is still above the oversold score of 30. VMEO’s last trading price was $3.46. This is lower than its 5-day EMA of $3.63. The 5-day EMA is lower than the 13-day EMA of $3.80. These short-term EMA numbers are lower than VMEO’s 20-day EMA of $3.88. They are all lower than the long-term 50-day EMA of $4.14. The EMA indicator is therefore also bearish for Vimeo’s stock.
The other long-term threat is that 18-year-old Vimeo already has many rivals. Vimeo is an 18-year-old company that only has 1.6 million paying subscribers. One of these rivals is mega-cap IBM (IBM). IBM Video Streaming could hurt the growth efforts of Vimeo. IBM has some enterprise customers that might be amenable to IBM Video Streaming replacing their Vimeo enterprise accounts. Going forward, Vimeo might suffer more quarters of net losses competing against so many B2C and B2B video platforms. The Video-as-a-Service was estimated by Allied Market Research to be worth only $4.27 billion in 2020. This niche market has CAGR of 13.2%. I opine Vimeo is losing money competing in a tiny niche, and a crowded industry.
Upside Potential?
Technical indicators are still bearish, so I do not see any near-term upside probability for VMEO. I guesstimate that it won’t be a profitable entity by end of 2023. Stock predictions are not an exact science. VMEO might eventually bounce back to $5 or above if it can surprise with another profitable quarter and a quarterly increase in subscribers.
The Vimeo brand has long-term loyalists too. My photographer brother Bryan has a paid Vimeo account so his events coverage team can upload their debut/wedding/birthday videos/slideshows. Their Vimeo subscription helps them attract customers.
I am not dismissing the potential probability that there are investors who could fall in love again with VMEO if it ends 2022 with 12% or higher YoY growth in revenue. Sadly, management guidance for 2022 is 10% YoY growth in revenue or around that.
The other potential long-term booster could be Vimeo getting a rumor that it is a takeover target. Thanks to the big decline from $57 to below $4, VMEO has reasonable valuation of just 1.33x forward Price/Sales and 1.66x TTM Price/Book. I opine Vimeo must prove it can be profitable first before it could attract buyout offers.
Final Thoughts
I think VMEO is not a buy or hold. In my opinion, it is a sell because it has 3 months of consecutive dips in subscriber count. It only has 1.6 million paying subscribers even though Vimeo predates YouTube. As of November 2022, YouTube has 80 million paying subscribers. It is also a sell because it has five consecutive quarters of net losses.
I guesstimate it will not be able to hit $1 billion revenue within the next three years. Vimeo cannot be called a growth stock if management is only guiding 10% YoY growth for 2022.
VMEO is a sell because it has consecutive quarters of net losses. I bet it will not be profitable even after fiscal year 2023. I do not have a price target for VMEO because it is not profitable. You can ignore my recommendation and go with the consensus buy rating that Wall Street analysts have for Vimeo. Those Wall Street analysts have an average price target of $8.40. I cannot explain why they are bullish on VMEO when technical/emotional indicators are bearish.
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