New York City-based Vimeo, Inc. (VMEO) is a leading all-in-one video software solution platform with more than 230 million users worldwide. It operates as a software-as-a-service (SaaS) platform offering over-the-top (OTT) streaming and monetization services. The company has been named one of the world’s most innovative companies by the Fast Company for the fifth time in 2022.

However, shares of VMEO have plunged 29.9% in price year-to-date due to the tech sell-off earlier this year. 

But as the equity markets stabilize, VMEO has gained 5.6% over the past five days to close yesterday’s trading session at $12.54.

Here is what could shape VMEO’s performance in the near term:

Decelerating Growth Trends

VMEO’s revenues grew 23% year-over-year in February 2022. This compares to the 54% year-over-year revenue growth rate it registered in February 2021. The company’s total subscribers grew 8% year-over-year last month, compared to 26% growth reported in the same period last year. Furthermore, VMEO’s average revenue per user grew 13% year-over-year in February 2022, down 1400 basis points from the 27% growth rate registered in the same month in 2021.

In addition, VMEO’s total revenues grew 23% year-over-year in January 2022, compared to 57% year-over-year growth recorded in January last year. The company’s total subscribers and average revenue per subscriber rose 10% and 12%, respectively, year-over-year this January. This compares to 25% year-over-year growth in subscribers and a 26% year-over-year increase in average revenue per user reported in January 2021.

Mixed Financials

VMEO’s revenues increased 26.6% year-over-year to $106.10 million in its fiscal fourth quarter, ended Dec. 31, 2021. Its gross profit came in at $79.50 million, up 35.2% from the same period last year. In addition, the company’s gross margin rose 500 basis points from the prior-year quarter to 75%.

However, VMEO’s operating loss worsened 537.8% year-over-year to $23.60 million. Its net loss came in at $24 million, compared to the $5.80 million loss reported in the year-ago quarter. The company’s loss per share worsened 275% from the same period last year to $0.15. And its adjusted EBITDA loss amounted to $7.60 million, compared to a $0.70 million gain reported in its fiscal year 2020 fourth quarter.

Mixed Growth Prospects

Analysts expect VMEO’s revenues to improve 18% in its fiscal 2022 first quarter (ending March), 14.5% in the next quarter, and 16.3% in fiscal 2022. However, consensus EPS estimates indicate a 9.6% decline in its fiscal 2022 second quarter (ending June 2022) and a 65.7% decline in the current year. Furthermore,  the Street expects VMEO’s EPS to remain negative until at least 2023.

Consensus Rating and Price Target Indicate Potential Upside

Among the six Wall Street analysts that rated VMEO, four rated it Buy while two rated it hold. The 12-month median price target of $19.17 indicates a 52.9% potential upside from yesterday’s closing price of $12.54. The price targets range from a low of $12.00 to a high of $25.00.

POWR Ratings Reflect Uncertainty

VMEO has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Quality and Sentiment. VMEO’s trailing-12-month gross profit margin of 73.82% is 44.9% higher than the industry average of 50.95%. However, its trailing-12-month net income margin is negative 13.47%, justifying the Quality grade. In addition, the mixed revenue and earnings growth prospects justify the Sentiment grade.

Of the 24 stocks in the Software – SAAS industry, VMEO is ranked #16.

Beyond what I have stated above, view VMEO ratings for Momentum, Growth, Stability, and Value here.

Click here to check out our Software Industry Report for 2022

Bottom Line

VMEO has benefited from the increased use of social media and OTT platforms since the onset of the COVID-19 pandemic, as people resorted to virtual entertainment amid lockdowns and social distancing measures. However, as the global economy reopens, VMEO has witnessed decelerating revenue and subscriber growth. In addition, given VMEO’s negative profit margins, we think investors should wait until VMEO’s bottom line improves before investing in the stock.

How Does Vimeo (VMEO) Stack Up Against its Peers?

While VMEO has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, MiX Telematics Ltd. (MIXT), The Sage Group plc (SGPYY), and Park City Group, Inc. (PCYG), which have a B (Buy) rating.

VMEO shares were trading at $12.46 per share on Thursday morning, down $0.08 (-0.64%). Year-to-date, VMEO has declined -30.62%, versus a -5.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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