Match Group, Inc. (MTCH) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm John Blackledge, Internet analyst here at Cowen. We're pleased to have Anjali Sud, CEO of Vimeo, presenting at our conference today. Anjali is going to walk through a presentation, and then we'll have some time for Q&A. So with that, I will turn it over to Anjali. Thanks so much for doing the conference. Appreciate it.

Thank you, John. It's good to be here. And it feels quite fitting to be doing this on video right now, I have to say. So I'm going to go after a few slides about Vimeo and our video SaaS strategy. The deck is also posted on the IAC IR site. So if anyone wants, they can access it there.

Great.

All right. So when I became CEO of Vimeo 3 years ago, my job was to pivot the platform from a video-watching destination to the #1 video software company in the world. And today, we exist to enable every business of any size to grow with video. So what does that mean? It means that today on Vimeo, any yoga instructor, real estate agent or small business owner can make videos on their phone in a few minutes. It means that today, on Vimeo, any marketing team can build a video campaign, publish it across social media and track their performance. And it means that today on Vimeo, any Fortune 500 company can securely live stream their town halls to employees and their conferences to customers. From these products, we generate over $200 million of recurring SaaS revenue, and we're seeing demand accelerate since COVID-19. We've long believed that video is the most effective medium for businesses to communicate online. But for most businesses, video is way too hard. It's time-consuming, it's expensive, it's complicated. You need a creative idea. You need a storyboard. You need a crew. You need to shoot and edit content. Then you need to get it in front of your potential customers who are all over the web. And those customers have short attention spans and videos have short shelf lives. So you need to be doing this whole process every week. So it's just too cumbersome, and it's a big problem that's been accelerated by the pandemic. And whoever solves this problem the best will win a huge market. We saw this happen with the website builders. The slide sort of draws that parallel. But 10 years ago, you had a few companies that recognized that building a website was too time-consuming, expensive and complex for most small businesses. So they built software technology in a simple UX to radically lower those barriers. And that opened up a $20 billion market in a few years. So Vimeo is doing the same for video. Vimeo -- video has really gone from sort of a nice-to-have option to a need-to-have lifeline for businesses. And so by radically lowering the barriers to professional video, we can win this big market opportunity. So how do we know this is a good strategy? Because video fundamentally works. We see it in the results of our own users, and we see it in the increasing adoption of the format across platforms, from websites to social media pages to marketplace listings. Video is prioritized in social media feeds and in search results. It drives more traffic. It keeps your attention, gets more clicks and builds more loyalty far more than texts or images. It sells your Memorial Day promotion or your home rental or your real estate listing. And so because video directly impacts businesses' growth at a time when businesses are struggling and moving further online, their need is even more clear. It's worth noting that Vimeo didn't start out as a B2B SaaS company, but rather as the home for filmmakers. And in some ways, that's a challenge. But in many ways, it's a real advantage. So our roots were in high-quality storytelling. We've spent 15 years building flawless tech and a clean UX that met the highest professional standards. And along the way, we amassed the world's most talented creative community in video, and we pressure-tested our tools against the most advanced use cases. This creative DNA actually helps us serve businesses uniquely today. We can offer them powerful software that just works, without training or setup. We can provide them with creative templates, the ideas, crews to hire and proven content suggestions. Ultimately, we can help every business become a storyteller. And our existing creative community becomes part of that solution beyond just the software and the code. And these are examples of some of the strongest tech companies out there that have demonstrated power of having creative roots. And if you think about the video space, Vimeo is the only one who can replicate that. This slide sort of helps show this evolution that I'm talking about through the words of our users. It just shows how we've shifted over time from being sort of the #1 tool for filmmakers to then setting the video hosting standard for agencies to now lowering the barriers for SMBs. And so that last quote is from a user of our recently launched Vimeo Create app, which helps anyone make social media videos with a few taps. And it just shows sort of how far we've come and how all that technical and creative power that was once reserved for the filmmaker is now available to that small business owner on her phone. So as we look to the future, what's our product strategy? And it's a really simple one. It's just one single software solution for every business to communicate effectively with video. We think about it in sort of 2 parts. The first is video creation, helping every business and their teams make video quickly, beautifully and affordably. And we want them to make better video, videos that are optimized to drive consumer action and that also represent each brand uniquely. The second sort of core piece of this is helping businesses communicate with their audience by reaching and engaging with their users wherever they are on the web. Whether this is like a Facebook video ad, a live event or a subscription video class, we are aiming to be multi-platform and totally distribution agnostic. So the product is designed to be quite flexible. And to scale with the type of user, we really focus on 4 use cases as the most critical. The first is helping creative professionals with their entire video workflow. So this is from sharing rough cuts privately with their teams to managing large video libraries, to showcasing their portfolios of clients, and of course, also helping them get hired and find freelance work. The second use case is helping businesses and brands market their products and services. So this includes creative templates and editing tools to make videos. It includes a distribution hub to natively publish your videos across the web, marketing tools to capture customer e-mail addresses and drive in-video clicks and then analytics dashboard to measure performance. And you can see some of the examples of brands that are kind of using us for that today. The third use case is large enterprises. And there, what we're really looking at is corporate communication, both internal and external. So internal can be live streaming a company, all-hands, a new hire training. External could be a sales conference being held virtually or a marketing event that you want to be able to get people to attend even if they're not physically able to. But all of those use cases, not surprisingly, are growing a lot right now. And we have a bunch of very large enterprises who are already using us at quite a significant scale. And then the fourth use case is media companies and content creators who are looking to monetize video content directly to their audience. So here we provide an all-in-one solution that allows them to stand up their own Netflix-like service. So they get their own branded channel and set of apps. They set their own pricing with a range of options from free to advertising-supported to behind a subscription paywall. And we power everything from the content ingestion to the tech to a white label-branded experience to customer support. And I just want to kind of emphasize here, while we think about these 4 use cases, the underlying sort of foundation here is one single, powerful technical foundation. So we like to think of our product as unified and our go-to-market as verticalized. So how big is our TAM? Probably this is the question I get asked the most. We believe that every business with an online presence now needs video and that the greatest demand is among small- to medium-sized businesses. Now there are over 800 million SMBs globally. If we could capture less than 5% of that market, we're a $10 billion business. And to date, we've only served a very tiny sliver with our 1.3 million subscribers. And that's because that group of people are ones who were already using video and had already overcome the large barriers to adoption. So the way we've thought about unlocking our TAM is really how do we make it so much easier for the vast majority of SMBs who want to use video, but find it too hard to do so. And so the things that we've been building in areas like video creation and in live streaming are really designed to unlock the vast majority of those businesses not yet using video today. It's also worth noting that if you look at our existing customer base, we started at the low end of the market. We have a significant portion of our subscribers are still individuals and creative professionals, though the share is increasing that are businesses. But what it means is from an ARPU perspective, we can move up market and serve more businesses and enterprises without cannibalization. And because video is tied to business goals and outcomes, we do see a high willingness to pay when we provide software that really works. And so we do believe that that should allow us to translate into higher ARPU over time. So we see evidence that we're on the right track. We're already a $200 million SaaS business. And as we shared in our Q1 and April numbers, we are seeing accelerating growth in demand beyond what we expected. We're expecting -- I think, April net adds, for example, I think, we shared, are higher than they were for Q1 combined. And underlying that, our business fundamentals are solid. So we have no customer concentration. We have a diverse, large global base of over 175 million registered users. We continue to see as we scale that our subs are sticky, they commit to annual plans, and we're able to start taking our self-serve funnel and upsell them through a sales force over time without having to fish in other ponds for those customers. You can see our strategy unfolds within our customer base. We've consistently grown subscribers while increasing ARPU. And our mix has sort of steadily shifted towards businesses. Today, 65% of our new subscribers are businesses and we expect that to continue to increase over time. This is a really important slide because it really highlights the importance of a freemium funnel. And for us, this is a critical driver of organic growth. So today, over 60% of our subscribers start by using the product for free. That's still a very small percentage of our total free base. We have a big opportunity to unlock them. But it shows how, by first trying before you buy, we are adding value and then getting people to graduate to become more frequent video users over time. And then of our paid -- of those paid subscribers, we see about 30% migrate to higher tiers over time. So similar to trying product for free before buying, we're then unlocking more advanced features, capability and usage as these users see the value of video. And then finally, sort of at the top of this pyramid is sort of the most nascent part of our business, which is on the enterprise side. And what we found is that since we started building tools for enterprises, we're seeing signals that there's a repeatable upsell from self-serve to a sales touch model. So a large portion of our sales pipeline today is coming from existing users, which means we're getting people to go from paying us a couple of hundred dollars to tens of thousands of dollars. And often, with a few conversations and in less than 30 days, that is -- has a promise to be quite a transactional and scalable enterprise model that very few SaaS businesses have. This gives us confidence that we can keep driving those ARPU increases as we've done in the past. So you'll see on the chart on the right, our lifetime revenue per subscriber has increased over 2.5x since 2009. That's largely coming from the introduction of new products and features as well as the mix shift of our base towards businesses. And given that we're sort of still in such early days on our enterprise strategy and given the increased demand for features like live streaming and creation, which are on the more advanced side of the spectrum, we see plenty of runway to continue this trend. And of course, none of this matters if our subs don't find real value in our product and stick around. And I think this is probably one of the most important things for any SaaS business. And our retention has been rock-solid and our leading indicators are promising. So if you look at the chart on the left, that's cohorted product engagement and it's increasing over time. And then if you look at the chart on the right, you'll see there are newer cohorts which are the shorter lines, are performing better than our old ones, even as we scale. And so this is just continued validation that as we launch new features and products, we are adding value and that's translating into a higher lifetime value, which improves our unit economics and means we can acquire more subscribers. And this all sort of translates to attractive unit economics. So these charts are indexed. So they're not showing our actual LTV to CAC, but rather the increase in those ratios over time for both self-serve and enterprise. It's worth noting these are all largely pre-COVID. So we only started to see the increased demand from the pandemic in the last 2 weeks of Q1 in March. So you'll see sort of in Q2 that what we expect our unit economics to continue to improve with that increased demand. But more importantly, most of the initiatives that we've undertaken this year and are continuing to focus on are really to drive continued improvement in unit economics outside of COVID-related demand, and we're seeing very positive traction there. So I want to just talk a little bit more about video creation and the new Create tool that we launched a few months ago. This is probably one of our biggest areas of investment today. And again, it's designed to help any small business make short-form videos for social media in a matter of minutes. A couple of things to kind of call out here. We saw incredible amount of demand among our base, particularly free users, who we have not yet converted, who basically said, yes, I'd love to use Vimeo's tools, but I just don't make enough video, it's too hard. And this is sort of our solution to that. We have really good validation here in the market. Video creation apps are seeing a pretty material increase in demand, again, pre-COVID. And we have, through the acquisition of Magisto that we did last year and the integration of their capabilities into Vimeo, we now have the best product. When we look at what others offer in the market, really nobody else is capable of a tool that allows you to create professional, fully customized video of this quality in a few minutes as well as all the other tools that Vimeo offers, distributing that video natively to social media sites, getting [ add back ] analytics, having a hosting solution all in one place. It's also worth calling out what a material step this is for us away from what we were before. So we've been a video-hosting platform. We've only been relevant to people who had a video. We've also been almost entirely desktop. So this is a mobile-first tool. It's iOS and Android apps. It really allows us to use mobile app marketing to open up an entirely new funnel where we know there's a ton of demand and to do it at lower customer acquisition costs. Thus far, in the first few months since the launch of our Vimeo Create app, all of our sort of original hypotheses and goals for that launch and the adoption are on track. So we are seeing lower customer acquisition costs. We are seeing incremental -- an incremental funnel on the mobile app side and so very promising results thus far on this approach. The other big area of focus is scaling our enterprise business. So today, over 60% of Fortune 500 companies have at least one customer account with Vimeo. The vast majority of those are paying us several hundred dollars with limited access to our tools, all decentralized across an organization. So we started to experiment with identifying these users and then using our sales force to reach out and upsell them, and we're seeing very promising signs of success. So there are some examples on the left here just anecdotally, but we're able to increase our account sizes often by over 100x. And so this is sort of the sales motion that we're in the very early days of, but that we can definitely develop and scale with the right data, the right tooling and the right sales force. Within enterprise, so I think a lot of times, it's a little unclear what actually we're offering. And I think the things I want to call out here is we really think of our enterprise offering is in 2 pieces. There's the media side, which is the monetization of video content and then there's corporate communications. I think what's interesting here is within each of these use cases, we're seeing growth across a variety of verticals. And the other thing that's similar between these 2 is that our leads are largely inbound, and we close them in about a month. So our sales model is quite unique. It's much more transactional and scalable. It means that we can hire salespeople quickly, onboard them quickly and they can start being productive quickly. And ultimately, if you think about the products and the onboarding, we're not building custom expensive high-touch services. This is really about taking our self-serve roots and using technology to democratize the process as much as possible and to really -- here for this business, one of our big focuses is on our sales force. How do we increase their efficiency and then expand them to cover more verticals, to cover more regions and expand globally and to just make them more efficient at fishing in our own pond. As we look to the future, there's sort of 5 clear growth levers that me and my team are focused on. First is opening up the top of the funnel, unlocking that market of SMBs who don't yet use video. I think the 2 biggest drivers there, as I mentioned, is our Create tool and then improving our free offering. So really making sure we feed the freemium funnel and make it much easier for free users to see value and get hooked on video before they have to actually pull out their wallet. The second lever is taking that free base and getting better and then upselling them into paid. And here, historically, we've had sort of a very blunt object approach, right? We just tell all of our users who are at different stages of the product, "Hey, you should pay us and here's why." And one of the big initiatives this year is more segmentation and personalization throughout the user experience and journey. So the UX on the site, your onboarding, e-mails, CRM, how do we get a lot smarter about tailoring our message to who you are and what your use case is. And so that -- this is sort of common logic, but also, we see it in our early testing. The more targeted we can be, the more we can increase that conversion rate. The third lever is increasing our LTV to CAC. That comes from both increasing lifetime value as well as reducing customer acquisition costs. The things we're doing to increase lifetime value is adding value to the product through initiatives like live streaming and creation. The things that we're doing to reduce our acquisition costs are opening up mobile app marketing and paid acquisition there, continuing to optimize our funnel to increase our conversion rates and we're starting to do much more with partnerships. So how do we natively integrate some of our capabilities into large third-party platforms where SMBs live, so that they can get a taste for what Vimeo can offer and then attract them to come to Vimeo for the full solution. That's an area that we really stood up in the last year, and we're starting to see some really exciting traction on, but has a real opportunity to diversify our acquisition away from sort of the traditional paid media model. The fourth lever is expanding our enterprise business. As I mentioned, we're going to be scaling our sales force, both inside and field sales as well as looking at global expansion. And we've recently built up a very small team in EMEA, the EMEA region, seeing very promising traction there. So you'll see us continue to look to expand globally. And then lastly, gross margins on Vimeo. They're high. They can absolutely be higher. So we'll keep looking to leverage our tech and scale benefits here on our path to profitability. I want to make sure we have some time for questions. So I'll just wrap it up here and say, here's a snapshot of our financial goals. We're expecting 20% to 30% organic revenue growth and long-term EBITDA margins of 20%. We're in the very early days of executing this video SaaS strategy, but our TAM is large. We're uniquely positioned to unlock it. And with IAC, we can invest thoughtfully while leveraging our fundamentals to drive profitability. And I just want to end by saying, look, the last 2 months of the pandemic have really shown us that the demand is there. And we find ourselves in sort of the right place at the right time to capture it. So I look forward to sharing more in the future. Thank you.

Thanks, Anjali. That was super helpful. We have only a couple of minutes left.

Sorry about that.

No. It was a great presentation and super informative. I would say, probably start with COVID, we've seen across the digital -- kind of all digital platforms this big pull forward of demand. Like you said, Vimeo saw acceleration in April. I know you don't have a crystal ball, but a lot of other management from other digital companies have said, this is kind of permanent. So I would just -- the question would be like, can we see like a sustained demand kind of for a period of time. What do you -- how do you view that?

I think the way that we look at it is we see the pandemic as having accelerated a market that we were -- we always believed would be there and -- because we've always believed video is the most effective format, and it was just a question of how do you get more people to actually see that. And certainly, the pandemic has done that. We've got -- have a ton more users coming to us proactively with search intent and demand already ready to go, whereas our marketing message used to be, "Hey, here's why you should use video." And now it's literally like, "We know you need video. You can use us and get started in a matter of minutes." It's a very different marketing message. I think our view is that there are businesses that have had to go entirely online. And eventually, they will likely move back to more of a hybrid model. So all these gyms and yoga studios out there that literally like are relying now on video is the only way to hold classes, they'll likely go back to some kind of hybrid. It's unlikely that they won't use video at all, right, because they're going to have losses of customers who see the value of doing that workout at home. And so our view is that the pandemic is -- there's likely some kind of peak. But we are settling in, we think, at an elevated level of demand, and we're looking to capitalize on it. Again, I don't have a crystal ball and we have to just keep watching. But certainly, that's what we see in the platform and in the demand today. We're a couple of months or at least a couple of weeks out since sort of the original kind of peak and more and more regions are reopening, and we certainly are seeing sort of a demand at higher levels than we had pre-COVID and more than we had expected.

That makes sense. You have a huge opportunity in front of you. And you mentioned, obviously, the 2 kind of buckets are enterprises and SMBs. And on the enterprise side, I thought it was interesting that, was it 35%, a start from existing users. So if you could just delve into how you're approaching the enterprise a little bit further. In the example of the $660 to $220,000, I mean, that's incredible. That will be nice if you could repeat that a lot.

Yes. It's amazing to see. And -- yes, I mean, one of the interesting stats in there is that, yes, 35% of our sales pipeline comes from our self-serve base. And within that, I think it was -- I think it's 60% of those are free users. So they aren't even paying us at all. And then we're able to identify your company, maybe you're an IT person or you're in the marketing team or you're on the comms team. And then we have a human have a conversation with you, and it turns out you actually had a real need and a real budget to sort of use video. So I guess what I'd say on the sort of land and expand opportunity in enterprise is, within Vimeo, it's really just a matter of building the pipes to identify who these users are and then getting that sales motion right on how to really convert them in an efficient way, and that's execution. That's just good old-fashioned execution by us, and it's something that we're making really good traction on. The other piece of this is a broader market question, which is we know there are different buyers within every enterprise organization has different video needs. So you have the CEO level sell, which is the CEO wants to live stream the town hall and wants to make sure it's going to go well. You have the communication or PR team that's thinking about the IR angle or the earnings call. You have the HR team that's thinking about onboarding and training new hires. You have the marketing, sales and creative teams who are all wanting to use video. And so the one thing that we're really figuring out here is, what is that land and expand motion? Where does it start? And then where does it build? And so far, we're seeing it kind of work both ways. So sometimes interest starts with the HR team for an internal town hall, and then it moves to the PR communications team for an external event and then it goes to marketing. And sometimes it's vice versa. But I would say that's sort of the world that's evolving right now where we have to kind of take advantage and get that repeatable sales motion. But what I would certainly say is video is becoming ubiquitous at all levels of the enterprise. And that's why you see an account go from $600 to $200,000 is because you have multiple departments within there using video in a variety of ways.

Yes. That's great. That's amazing. I think we are out of -- unfortunately, out of time. But again, super informative. Thank you so much for participating and the great presentation.

It was a pleasure. Thank you, John.

Imagine people are clapping now.

Thank you.

All right. Thank you.