Vimeo (VMEO), which operates an online video platform, came public last month through a spin-off from IAC/InterActiveCorp (IAC). Unfortunately, the deal has not been so great. Note that the shares have gone from a high of $57 to $43. The market capitalization is roughly $7 billion.
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Yet it is not uncommon for spin-offs to get hit with plenty of selling. The valuation can be tough to gauge on these offerings. Furthermore, the shareholder base of the parent company may not necessarily want to hold shares in the newly public company.
Now, IAC is certainly no stranger to spin-offs. The company is actually one of the most prolific dealmakers in Corporate America. IAC has engineered 11 spin-offs, such as for Expedia (EXPE), Match Group (MTCH) and LendingTree (TREE). As for Vimeo, this is definitely one to keep an eye on. (See Vimeo stock chart on TipRanks)
Background
Vimeo got its start back in late 2004 (the company’s name is a blend of “video” and “me”). The founders included two programmers, Jake Lodwick and Zach Klein. They had created several other websites, including CollegeHumor, that were part of an organization called Connected Ventures.
A couple years later, IAC acquired the company. Interestingly enough, the main driver for the acquisition was CollegeHumor. But ultimately, Vimeo wound up being the real gem.
Fast forward to today: the company is a powerhouse in the online video industry. Consider that Vimeo has over 200 million users.
The app makes it much easier for anyone to create and distribute professional quality videos. Just some of the features include a sophisticated editing system, stock footage, screen recordings, and templates.
Growth has definitely been robust. In the latest quarter, revenues spiked by 57% to $89.4 million and the net profit came to $3.3 million, compared to a net loss of $20.3 million in the same period a year ago. The company has about $316 million in the bank.
Vimeo generates revenues based on a freemium model. What’s more, although the users are primarily small and medium size businesses (SMBs), Vimeo has been getting more traction with enterprise customers. That has helped to boost its top line.
The market opportunity is quite large as well. On a global basis, there are over 300 million SMBs and more than one million enterprises.
According to Jefferies analyst Brent Thill, the addressable market is estimated at a whopping $70 billion. Moreover, he is highly positive about Vimeo, saying, “From live event streaming to workforce training, business adoption of video is gaining momentum, and we believe Vimeo’s best-in-class platform can become the leading one-stop-shop enterprise solution.”
Wall Street’s Take
Turning to the analyst community, Vimeo stock has 4 Buys and 1 Hold that have been assigned in the past three months. So, the shares are a Strong Buy. At $53, the average analyst Vimeo price target implies 22% upside potential.
Bottom Line On Vimeo Stock
No doubt, online video is a secular tailwind. This technology is rapidly becoming essential for the success of businesses – and yes, Vimeo has a strong solution.
But the company still has only about 1.6 million subscribers. In other words, there is much room for monetizing the base, which should help provide for solid long-term growth.
Disclosure: Tom Taulli does not have a position in Vimeo stock.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
