July 21, 2024


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VMEO Stock Is the Best Creator Economy Stock You’ve Never Heard of

Step aside, Elon. With over 2 million people making six figures or more on YouTube, Twitch and Instagram, it’s no surprise that more kids want to be celebrities than astronauts these days. Vimeo (NASDAQ:VMEO) is giving today’s creators the tools to do just that. The company just went public yesterday, and VMEO stock is now trading for about $44 per share.

VMEO stock: A laptop on a desk displaying the Vimeo logo

Source: monticello/ShutterStock.com

Vimeo, which makes cloud-based video software, is the latest spin off for Barry Diller’s Internet holding company IAC/InterActive Corp. (NASDAQ:IAC). IAC, known for breakout Internet stories like Match Group’s (NASDAQ:MTCH) Match.com and Expedia (NASDAQ:EXPE), has a proven track record of finding the “next big thing.” And with more people wanting to make money doing what they love — whether it’s stock picking, video games or makeup — the creator economy is on a course towards explosive growth.

Vimeo has the potential to kill Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Youtube, or at least be the number two player in a massive market.

VMEO stock is trading at roughly an $8 billion valuation. Now’s the perfect time to buy a relatively unknown growth story at a reasonable price before the rest of the market catches up.   

Vimeo: An Accidental Success Story

Founded in 1986, IAC is one of the global leaders among media and internet companies with a portfolio of more than 150 brands.

The company’s strategy is simple: acquire small online businesses, grow them through a series of acquisitions, and then spin them off as successful public companies. In its 25 year operating history, IAC has delivered lots of home runs, including Expedia; LendingTree (NASDAQ:TREE); HSN, now part of Qurate Retail Group (NASDAQ:QRTEA); Interval Leisure Group, which is now part of Marriott Vacations Worldwide (NYSE:VAC); Ticketmaster, which is now part of Live Nation Entertainment (NYSE:LYV); and Match Group, which was spun off in July 2020. 

Vimeo is well-aligned with what’s going on in today’s creator economy. But IAC didn’t see much value in the business initially. In fact, IAC bought Vimeo in 2006 largely by accident. The business was tossed in as part of IAC’s acquisition of Connected Ventures, known for the once-hot comedy website CollegeHumor. IAC’s press release announcing the $30 million acquisition didn’t even mention Vimeo, which at the time was the web player for CollegeHumor’s sketches. 

Powering a Gig Economy

It wasn’t love at first sight. But IAC didn’t wait long to make a move. Soon after the company bought Vimeo, Google acquired YouTube for over $1.65 billion. That deal was a wakeup call for IAC to invest in the business.

The result was a classic David and Goliath story. Vimeo transitioned from an ad-free viewing destination to a leading software provider that enables anyone to succeed with video. The company began focusing on curated content and high-definition video to distinguish itself from other video sharing sites. Finally, Vimeo adopted a lucrative software as a service (SaaS) business model and became a true technology player. 

With these changes, Vimeo squarely positioned themselves as the creative supplier for a gig economy. Having an interested parent company with a strong balance sheet also helped Vimeo make important acquisitions, including Livestream, Magisto and VHX, and expanded the company’s offerings and scale.

YouTube’s Indie Cousin 

Today, Vimeo provides a cloud-based SaaS video platform to 1.5 million paying subscribers. That number also accounts for more than 3,500 advertising and enterprise customers, including big names such as Amazon (NASDAQ:AMZN), Starbucks (NASDAQ:SBUX), Rite Aid (NYSE:RAD) and Siemens (OTCMKTS:SIEGY). 

With a market estimated to reach $70 billion by 2024, video creation is nothing to sneeze at. Creative professionals, indie filmmakers and small businesses use Vimeo’s technology to create, host, stream, monetize, analyze and distribute videos online and across devices. Vimeo also offers tools for screen recording, collaboration and video storage.

In a market dominated by YouTube, investors may wonder how Vimeo has an edge. But the company has earned its reputation as YouTube’s cooler, indie cousin for a reason. Despite being a much smaller platform than YouTube, more indie creators turn to Vimeo because of its unique audience. Vimeo also has a strong community aspect to their products. In contrast, YouTubers are usually looking for entertaining and viral clips. 

Vimeo was smart to target the enterprise market. With businesses getting more creative in how they advertise, communicate and collaborate — especially post-Covid — the company’s Enterprise product has been its fastest-growing segment. According to their 2021 first quarter report, Vimeo saw enterprise revenue gains of more than 100% year-over-year. 

VMEO Stock Is Beating GOOG Stock at its Own Game 

Not surprisingly, Vimeo’s business skyrocketed during the Covid-19 pandemic as more homebound artists let their creative juices flow. But even in a more “normal” world, Vimeo’s business model proves it still can buck the trends. In Q1, Vimeo reported incredible subscriber growth of 25%, driving revenue up by 57% year-over year to $89.4 million. The company’s growth shows no sign of slowing. 

At just under $44, VMEO stock’s price implies a reasonable valuation for a software business in the early innings of growth. There are lots of things to like about Vimeo for the long term. First, the gig economy isn’t going anywhere. Second, Vimeo does something YouTube can’t: the company captures not only individual content creators, but also businesses. 

Finally, from a numbers perspective, Vimeo’s recurring SaaS model provides a high degree of steady recurring revenues and visibility of future growth. For a tech company, predictability is important, which is a big reason why SaaS stocks tend to carry premium valuations. 

Vimeo’s recent trends are very strong, with the company still recording bookings growth ahead of revenues. In a tech sector where valuations look stretched, VMEO stock is a unique opportunity for investors to get into a fast-growing, high-quality business still flying largely under the radar.

Disclosure: On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.