Vimeo, Inc. (VMEO - Get Rating) provides video software solutions in New York and internationally. The company provides the video tools through a software-as-a-service model, which allows its users to create, collaborate, and communicate with video on a single platform. The stock has declined 87.7% over the past year and 65.3% year-to-date to close the last trading session at $6.23.

VMEO was growing tremendously during the pandemic, and many investors had an eye on it. However, VMEO’s poor financials spooked investors about the company’s ability to grow over the next three to five years, resulting in a massive sell-off of the stock.

In addition, the massive sell-off in software and technology stocks this year has also impacted the VMEO. The stock is currently trading 88% below its 52-week high of $52.06.

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

Latest Developments

Last month, VMEO announced the launch of new interactive video capabilities with Vimeo. This launch has created a successful integration of the WIREWAX feature-set after its acquisition by Vimeo last November.

“We believe that most business videos will include some form of interactivity in the future because it’s a proven, more effective way to engage audiences of all kinds,” said Mark Kornfilt, President and Chief Product Officer Vimeo.

In April, VMEO announced the availability of its enterprise video offerings to developers directly on the Google Cloud Marketplace, making it simpler and more accessible for businesses of all kinds to unite video across their operations.

Mixed Financials

During the first quarter ended March 31, 2022, VMEO’s revenue increased 21.2% year-over-year to $108.35 million. However, Its operating loss grew 141% from its year-ago value to $26.26 million. The company’s net loss amounted to $26.56 million, compared to net earnings of $3.31 million. Its loss per share stood at $0.16 compared to an EPS of $0.02 in its prior-year quarter.

Premium Valuation

Despite declining 65.3% year-to-date, the stock is still trading at a premium to its peers. In terms of forward Price/Sales, the stock is currently trading at 2.32x, which is 80% higher than the 1.29x industry average. VMEO’s 2.89x trailing-12-month Price/Sales is 72.7% higher than the 1.68x industry average.

Mixed Growth prospects

Analysts expect VMEO’s revenue to increase 12.7% in the current quarter, 13.8% in the current year, and 15.4% in the next year. However, the company’s EPS is expected to decline 30.8% in the current quarter, 85.7% in the next quarter, and 75.8% in the current year.

Consensus Rating and Price Target Indicate Potential Upside

Of the four Wall Street analysts that rated VMEO, two rated it Buy, and two rated it hold. The 12-month median price target of $13.75 indicates a 120.7% potential upside. The price targets range from a low of $9.00 to a high of $20.00.

POWR Ratings Reflect Solid Prospects

VMEO has an overall C grade, which equates 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.

Our proprietary rating system also evaluates each stock based on eight distinct categories. VMEO has a D grade for Momentum and a C grade for Sentiment and Value. Its Momentum grade is justified given that it is trading below its 50-day and 200-day moving averages of 8.42 and 16.43. Its sentiment grade is consistent with its mixed earnings estimates, and its higher valuation is in sync with its Value grade.

Out of the 24 stocks in the F-rated Software – SAAS, VMEO is ranked #14.

Beyond what I stated above, we have graded VMEO for Growth, Stability, and Quality. Get all VMEO ratings here.

Bottom Line

Massive tech sell-off and poor financials have affected the stock adversely. In addition, the projected weakness in its bottom line could further add to investors’ concerns. Therefore, it could be wise to wait for a better entry point in the stock.

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

VMEO has an overall POWR Rating of C, equating to Neutral. Check out these other stocks within the Software – SAAS industry with B (Buy) ratings: The Sage Group plc (SGPYY - Get Rating) and MiX Telematics Ltd. ADR (MIXT - Get Rating).

VMEO shares were unchanged in after-hours trading Tuesday. Year-to-date, VMEO has declined -66.31%, versus a -18.98% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...

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