The spinout of video platform Vimeo from IAC completed today, with the smaller company now trading as an independent entity under the ticker symbol VMEO.
If you missed the news that the internet conglomerate was spinning out the video service, don’t feel bad; it slipped past many radars. But with the company now trading, with our access to its historical results, and with our minds still enthralled by YouTube’s recent financial performance for Alphabet, it’s worth taking a moment to digest the company’s health.
Let’s answer a few questions: How quickly is Vimeo growing, how profitable is its business, and what can its spinout tell us about the larger video market? Recall that Kaltura, another video-powering company, recently put its IPO back into the pipeline after a small delay during what felt like a snap-freeze of the public markets toward the start of the second quarter.
So the Vimeo debut could impact a possible forthcoming unicorn IPO. With that in mind, let’s dig into the numbers.
From Q1 2020 to Q1 2021, Vimeo’s revenues expanded from $57 million to $89.4 million, a gain of around 57%. That’s a solid pace of expansion, but not a surprising one considering how much digital video the world consumed during the COVID-19 pandemic, a fact that could have bolstered the company’s recent performance.
Over the same time frame, Vimeo’s gross profit grew from $38.6 million to $64.5 million, a gain of around 67%. As you can infer from faster-rising gross profit than revenue, Vimeo’s gross margins improved during Q1 2021 compared to the first quarter of 2020, from 68% to 72%.
That’s rather good; strong revenue growth on the back of improving product economics is an easy way to chart a path to long-term cash flow positivity. In that same vein, Vimeo’s growth also came with falling R&D costs, S&M costs and G&A costs, each measured as a percentage of revenue from Q1 2020 to Q1 2021.
So did all that work add up to material profitability at the company? Kinda.
Vimeo’s operating losses improved from $17.2 million in Q1 2020 to just $5.6 million in Q1 2021. That’s solid.
But even better was the fact that in the first quarter of this year, Vimeo posted positive net income. That means that, on a GAAP basis, it actually made money in the first quarter of the year.
How did Vimeo manage the feat, given that its operating income was negative during the same period? The company’s “other income” line item is to blame. Coming in worth just over $10 million in Q1 2021, Vimeo generated other income from the “sale of [its] retained interest in its former hardware business.” That pushed it from an operating loss to positive net income.
So, yes, the company’s GAAP profits got a boost in the period, helping the firm produce black ink ahead of its flotation. But its operating results are more indicative of its actual performance; because they show good progress toward profitability, they are not a burden. We merely don’t want to accidentally read Vimeo’s net income results from Q1 2021 and confuse ourselves about its near-term profitability.
What’s it worth?
Here’s a little secret: Nearly every financial reporting website doesn’t share market cap data for new listings. It’s why you often get approximates on listing days. So we’re going to have to do our own homework today.
Digging into the filing a bit, the company has at least 300 million shares approved, but wrapped Q1 2021 with 156.5 million shares outstanding on a basic basis. On a more diluted basis — which is what we want — the company had 165.9 million shares outstanding at the end of March.
At Vimeo’s current share price of $41.76, the company is worth around $6.93 billion.
A few notes on that data point:
- The company’s stock is marked as being off around 19% today, though from what base is not entirely clear. That’s not good.
- Using Vimeo’s Q1 2021 revenue to set a run rate, the company is worth more than 19x its current top-line pace. That’s good.
- Vimeo was last valued at around $5 billion on the private markets.
Despite the company’s putative performance not being very good thus far today, I can’t really find much bad about the company’s valuation and implied multiples, provided that we are doing our math correctly, at least when compared to its most recent private valuation.
What does this all mean for Kaltura? I’d say that the valuation range that Vimeo has managed to achieve is pretty good news for the smaller company. Essentially no one is going to be that unhappy with a nearly 20x multiple on their current top line; it’s just a good number.