Vimeo (VMEO), a leading video hosting and sharing service provider, is enjoying a growth trajectory. The results show that Vimeo’s ad-free model is becoming more appealing as an alternative to ad-intensive platforms. Recently reporting robust Q2 2024 results that exceeded market expectations, Vimeo’s revenues grew to $104.4 million, a 4.77% year-over-year increase.
Despite a year-to-date increase in the share price of over 29%, Vimeo’s stock continues to trade at a significant discount compared to industry peers. It is a potentially appealing option for value investors seeking exposure to the growing video software industry.
Vimeo Is a Key Player in a Rapidly Growing Market
Vimeo provides online video software and services that enable creators and businesses to host, distribute, and monetize their videos from anywhere. Its comprehensive service suite includes professional software and technologically advanced tools under an efficient software-as-a-service (SaaS) model.
The video streaming software market is expected to grow from $13.3 billion in 2024 to $29.7 billion by 2029 at a compound annual growth rate (CAGR) of 17.5%.
Vimeo’s Recent Financial Results & Outlook
The company recently announced its second-quarter results for 2024, successfully outperforming analysts’ estimates. Revenue was $104.38 million, surpassing the anticipated $99.62 million, marking a 2% year-over-year increase. The Enterprise segment showcased substantial growth, contributing to 23% of total bookings and 19% of the total revenue. This resulted from a significant year-over-year increase and impressive new customer acquisitions.
Enterprise bookings hit $23 million, moving Vimeo closer to achieving a $100 million annualized bookings run rate. The company also registered a 6% increase in average revenue per user (ARPU) in Q2 2024.
Strong performance was also observed in expense management throughout the quarter. Despite maintaining a flat GAAP operating cost, the company improved its gross profit margin on GAAP and non-GAAP bases. Earnings per share (EPS) of $0.06 exceeded expectations of $0.01.
The company ended Q2 with $311 million in cash and cash equivalents.
Following Q2 results, management has issued future guidance, forecasting revenues of around $405 million and an operating income of approximately $3 million for 2024. However, for Q3, the company expects a slight dip in revenue (at or below $100 million) and a possible operating loss of about $1 million.
What Is the Price Target for VMEO Stock?
The stock has been on a volatile journey, with a beta of 1.84, as it has experienced a multi-year decline, shedding 85% in the past three years. However, the stock has rebounded this year and trades at the upper end of its 52-week price range of $3.02 – $5.77, demonstrating positive price momentum by trading above its 20-day (3.74) and 50-day (3.82) moving averages. With a P/S ratio of 1.9x, the stock trades at a discount to the Software Application industry average of 6.5x.
Analysts covering the company have taken a cautious stance on the stock. For example, TD Cowen Analyst John Blackledge, a five-star analyst according to Tipranks’ ratings, recently reiterated a Hold rating on the shares with a price target of $6.00. He noted the solid Q2 results and positive revenue and EBITDA guidance adjustments for the fiscal year 2024. However, the company’s plans to increase investment in product innovation could impact short-term profitability.
Overall, Vimeo is rated a Hold based on four analysts’ recommendations and recently assigned price targets. The average price target for VMEO stock is $5.50, representing a potential 8.48% change from current levels.
Bottom Line on VMEO
Vimeo has recently shown promising growth, outperforming market expectations as it grows its Enterprise business. While third-quarter projections indicate a slight dip in revenue, the overall outlook remains optimistic. Despite its positive growth trajectory and a year-to-date share price increase of over 21%, Vimeo’s stock continues to trade at a significant discount, making it a potentially attractive option for value investors looking to diversify into the rapidly expanding video software market.
