Vimeo (VMEO)

Video software platform Vimeo (NASDAQ:VMEO) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 1.8% year on year to $103 million. Its GAAP loss of $0.02 per share was in line with analysts’ consensus estimates.

Company Overview

Originally launched in 2004 as a platform for filmmakers seeking a high-quality alternative to YouTube, Vimeo (NASDAQ:VMEO) provides cloud-based video creation, editing, hosting, and distribution software that helps businesses and creators make, manage, and share professional-quality videos.

AI-driven content creation, personalized media experiences, and digital advertising are evolving, which could benefit companies investing in these themes. For example, companies with a portfolio of licensed visual content or platforms facilitating direct monetization models could see increased demand for years. On the other hand, headwinds include growing regulatory scrutiny on AI-generated content, with many publishers balking at anything that gets no human oversight. Additional areas to navigate include the phasing out of third-party cookies, which could make traditional ways of tracking the online behavior of consumers (a secret sauce in digital marketing) much less effective.

Vimeo competes with large social media platforms like YouTube for video sharing, enterprise video providers such as Brightcove, On24, and Kaltura, video communication tools like Zoom and Microsoft Teams, and adjacent services including Slack, Dropbox, and Canva that have expanded into video-related functionalities.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $415.1 million in revenue over the past 12 months, Vimeo is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Vimeo’s sales grew at an exceptional 14.7% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Vimeo’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.5% over the last two years.

This quarter, Vimeo’s revenue fell by 1.8% year on year to $103 million but beat Wall Street’s estimates by 1.6%.

Looking ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Although Vimeo broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 6.8% over the last five years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, Vimeo’s operating margin rose by 13.1 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

This quarter, Vimeo’s breakeven margin was down 2.5 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Vimeo’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Vimeo reported EPS at negative $0.02, down from $0.04 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Vimeo to perform poorly. Analysts forecast its full-year EPS of $0.10 will hit $0.03.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Vimeo has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.6%, subpar for a business services business.

Taking a step back, an encouraging sign is that Vimeo’s margin expanded by 9.8 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Vimeo’s free cash flow clocked in at $6.9 million in Q1, equivalent to a 6.7% margin. This result was good as its margin was 1.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Vimeo’s five-year average ROIC was negative 15.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the business services sector.

Companies with more cash than debt have lower bankruptcy risk.

Vimeo is a profitable, well-capitalized company with $289 million of cash and no debt. This position is 34.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Vimeo blew past analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its full-year EBITDA guidance missed. Zooming out, we think this quarter was mixed. The areas below expectations seem to be driving the move, and shares traded down 2.8% to $5.01 immediately after reporting.

Updated: May 22, 2025 at 11:59 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Vimeo.

Vimeo’s business quality ultimately falls short of our standards. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s rising cash profitability gives it more optionality, the downside is its projected EPS for the next year is lacking.

Vimeo’s EV-to-EBITDA ratio based on the next 12 months is 24.4x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $6.85 on the company (compared to the current share price of $4.44).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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