People Incorporated (IAC) Earnings Call Transcript & Summary

Yes. So we see a big opportunity to increase our ARPU, and it comes from a couple of different places. One, it's the mix shift into enterprise. So again, as I noted, our ARPU for our enterprise businesses is $20,000, which is materially higher than our total ARPU. And so as the enterprise business continues to scale and as we really land and expand within organizations, we expect that to be a big driver. And you will see us do things here to both optimize our pricing and launch new video products and services. So that if an organization starts by using us for one thing, we are then able to quickly offer them a variety of other additional capabilities with video, and that's a big part of our land-and-expand strategy. So that's going to be a big driver. The other big driver is, again, just within our self-serve offering for small businesses, for professionals, we do still see a big opportunity to continue to shift those users up tiers. This has actually been the biggest driver of our ARPU increases in the last few years, and we do think that we can keep driving. And one of the biggest reasons is -- to your point on pricing, which is, today, our pricing and tiering and packaging, we think, is sort of underutilizing people's willingness to pay. So an example, most SaaS companies you talk to, a lot of them use per seat pricing, so that you're kind of growing the amount people pay with the usage within their team. Well, today, Vimeo doesn't do that. Today, we price based on storage caps. And so we do think there's an opportunity to sort of better align our pricing and packaging with willingness to pay. We've made a big investment in teams, seats, permissions, collaboration on the platform. And so you'll see us sort of test and optimize that pricing and packaging in 2021 to really better unlock that mix shift. And then last, I'll just say on the question of pricing, look, the more value we build, we expect there to be higher willingness to pay. And I think that if anything, we feel even more confident that companies see the ROI of video and understand that it's an important driver of their communication strategy. But I would also say, nowhere in any of our growth plans are we kind of planning to raise pricing. We really -- our entire sort of growth strategy is more driven on adding value, moving people up tiers and then shifting mix to larger organizations.

Super clear. Maybe if you -- if we take just half a step back, you guys as a company have always talked about the addressable market you're going after. Can you talk about how you frame the addressable market for investors who've maybe are a little bit less knowledge about what you're sort of scaling after. And how you see the addressable market sort of evolving post-pandemic? Are there changes? Is there a different narrative or an adoption curve that you're now thinking through, given what's happened with customers in the last sort of 6 to 9 months?

Yes. I mean, I think, in simplest terms, we think of our TAM as every business and professional in the world. And there's a question of how much of that TAM will use video and how much of those people will be willing to pay and willing to pay for Vimeo's tools and that's really the question, but it's a massive market. And look, I will say since the pandemic, I do think our view on the size of the market has changed. I think, particularly on the enterprise side, we see a larger TAM than we had before. And I think that's just because we see now with much more validation the desire for organizations to be video-first in every way that they communicate. So -- whereas before we kind of thought of that market and the willingness to pay for an organization or the budget that can be unlocked for video within an organization as being more confined to a couple of different departments. What this pandemic has clearly shown us, and we see it in our own customer base, is that there is interest and demand for video among every single department. Marketing team, sales team, HR team, IT team, comms team, CEO, throughout the board, IR, I mean, it really is very, very substantive. And so we actually do think that the TAM now includes things like every team sharing video messages and recording their screen, onboarding of employees, sort of the idea of having a centralized video library, where all of the company's content is stored and it's easily findable. Those are all areas where we see the TAM as, in fact, bigger than we originally thought. And then just to sort of -- I think our view is we think the TAM is $50 billion. I mean we have less than 1% today. If you look at the market, there just aren't a lot of players out there with the kind of product portfolio and I guess, I would call it, head start that Vimeo has. So we just see the market as big. We see it as bigger and growing faster than we had thought, and there's just a lot of opportunity for Vimeo to take advantage.

That's great. Maybe coming back, you talked about the mix between customers and revenue today on the enterprise business opportunity. Can you give us some examples of some of the customers you have on the enterprise side? I think that's a question I get a fair bit. Who uses it? How -- you gave some examples before, but I wondered if we can go a little bit deeper and just maybe understanding a little bit of who your customer is on the enterprise side, how they use it and how you think they evolve as customers if you look out over the next sort of 3-, 5-plus years?

Yes. Absolutely. So look, I think on the enterprise side, as I mentioned, we have a wide range of companies across industries and verticals and sizes. Examples, everyone from the New York Stock Exchange, who uses Vimeo to live stream their opening and closing bell ceremonies; to Carlyle Group using Vimeo to host their town halls; to Columbia University live streaming their commencement ceremonies; to Amazon using video for training; Starbucks recently started using us to train their associates in their store locations around the world. Software companies like Zendesk are -- have been using us for conferences and town halls and then recently started a live show that they now stream to their entire global customer base. So it's a pretty wide mix of customers. And so the way I sort of think of it and it's any organization over a certain number of employees or over a certain size is sort of ripe to use video. And our go-to-market motion, our sales motion may -- will target companies based on geo, based on industry vertical, but actually the opportunity, what they're fundamentally trying to do with video exists everywhere. Where I see the sort of customer relationship changing is more on this land-and-expand piece, which is, today, most of the organizations come to Vimeo because they have an immediate need. And typically, it is something like internally communicating with employees or externally communicating with customers through an event, some kind of a town hall, a conference, something like that. And that's really kind of the way we land in most organizations. What we're really looking to do is, from there, have a very repeatable, scalable motion to expand, so that we start maybe with the comms or CEO on a -- with a town hall offering, and then we quickly go from there to HR training and onboarding and marketing and a corporate video library, et cetera. So what you'll see us do is really very steadily shift new capabilities over the coming months and quarters that unlock these new video use cases. And you'll see us like continually refine that land-and-expand motion. What I can tell you today is that even where I would say -- even with the sort of product suite that we have right now and the motion we have right now, we have seen our sort of -- we've seen land and expand working quite nicely. We measure, and I think we've shared publicly, our net revenue retention, which is -- I think we've shared, is over 100% and has been sequentially increasing very steadily. And so basically, we know that for a cohort of enterprise customers that come in a year later, even accounting for churn, those customers are ultimately driving more value and more revenue for us because the ones that stay are expanding their usage and their contract value over time.

Maybe just one follow-up there, just to tie it all together. You talked a little bit about some of the investments you're making and being able to engage with customers on the enterprise side. How do you rank order the things you're still trying to unlock, so that you capture as much of that opportunity as possible, whether it be scaling the sales force, thinking about the product innovation and the product set we talked about before? Is there any way to sort of just give us a sense of what you see as the biggest key variables to make sure that you do capture the enterprise opportunity?

Yes. Look, I think -- look, the biggest immediate unlock variable is just sales force expansion, classic. We have product market fit. We have great unit economics. Our LTV to CAC is strong. Our NRR is strong and expanding. So look, the first and foremost thing is just expanding our sales team, and we are in the process of doing that. It's partly why we also wanted to raise capital that we had sort of the runway to do what we needed to do. But look, there's a big opportunity there. And in particular, outside the U.S., we have really no footprint outside of a few salespeople in Europe right now. And as you can imagine, the demand from organizations for video is global. So you will see us very quickly stand up offices and sales teams in areas like EMEA, APAC, LATAM, and really just try and -- immediately with the products and offering we have right now to be able to penetrate the global market. And then look, that's sort of like near-term immediate unlock. The bigger one though, the one that I would say is most critical for us and that, I think, ultimately, is going to be the medium-term driver of our growth is R&D and product expansion. And I won't get into too much of the details of our road map. But what I will say is, we have a very -- we have clear demand from our enterprise customers today. We're not guessing in our road map. We have -- these are the customers who are paying us. We're saying, if you could just give me this as well, I will pay you twice as much or I will expand from 1 department to 15 departments or I will expand from 1 office to 50 offices. And so the sort of -- we know what we need to build, and we're building it. And so I think it will really be about just getting those products to market as fast as possible, making sure those products work brilliantly for our enterprise customers and then just perfecting that land-and-expand motion. But yes, I would say it's sales force expansion, particularly outside the U.S.. And then it's R&D. And particularly, it's R&D execution. It's really just we know what we need to build, and it's getting it built beautifully and quickly.

And maybe just one follow-up there on the international piece. In terms of what you're trying to go after, do you see a bigger opportunity in taking your existing customer base and maybe even serving all of their video needs on a global scale? Or do you see yourself sort of operating country by country, region by region against smaller but still enterprise customers as opposed to the consumer? How do you see about the bigger opportunity and the one that's maybe sort of in your sights in terms of being able to unlock via those investments?

Yes. It's both. So on the enterprise side, we will approach international expansion region by region. And it doesn't mean we'll go one region at a time. We will look to plant seeds in multiple regions at once. But we do need to set up -- you need the right sort of boots on the ground. You need the right motion. Sometimes the product needs are a little bit different. So we really are trying to be quite focused in how we attack those regions. On the self-serve side, it's very different. Today, around half of our subscribers already are outside the U.S. and our conversion rates are lower outside the U.S., and we've known that. And I think the approach that we've sort of been taking and will continue to take in terms of international opportunity on the self-serve side is we're a self-serve platform. We aren't going to just like pick one region and go really, really deep. We're looking at broader ways to unlock international growth. And so you'll see us look at things like site experience, payments and transaction method, languages. Are there specific features or pricing models that we need to do to adjust to sort of better approach a market? So I think that's kind of how we're looking at the broader platform opportunity because the demand is everywhere. And by the way, we analyze our demand curve by country, by region. We've been -- we can see how video demand has changed since the pandemic based on when certain companies -- countries have opened and closed. And what I can tell you is like the broad theme is that the demand is very -- it's very consistent. And so we think that there's basically like low-hanging fruit unlocks that we can do that don't mean we have to go super deep, like with a localized team and campaign in one region in order to unlock most of the value.

Maybe along those lines, you now have the Powered by Vimeo partner program. I think GoDaddy just joined it recently. Can you talk a little bit about the opportunity and how you might -- it might be an element of addressing the long-term market opportunity through partnerships and working with other providers and companies in a program like Powered by Vimeo?

Yes. So Powered by Vimeo, we're really excited about. It is -- effectively, it allows us to natively integrate our video hosting creation and live streaming tools into the largest technology platform for SMBs out there. As you mentioned, I think about 6 weeks ago, we launched with -- an integration with GoDaddy, where every video uploaded and embedded on a GoDaddy website is hosted by Vimeo. We have partnerships with Shopify, Eventbrite, Facebook, Pinterest. And really, if you just think about what we're trying to do here, we see this as really a customer acquisition strategy. So we're offering our tools and capabilities natively into these platforms, and they're branded. And we have an opportunity through that experience to then bring people to Vimeo to unlock more features. So it's really, for us, about exposing SMBs to our tools on the platforms where they already live and then having a very seamless and sort of intuitive funnel back to Vimeo. And what I can tell you so far, even just the GoDaddy and Shopify partnerships that we launched less than 6 weeks ago, those are driving tens of thousands of new SMBs to our platform. When we look at the sort of behavior and conversion rates, we're seeing users from our Shopify integration, for example, they're converting to paid plans at a significantly higher rate than our typical sort of marketing efforts drive. So we think there's a big opportunity here. You will see us invest here. You will see us launch new partners in the coming months. And you'll see us target different verticals, everything from e-commerce to marketplaces, to real estate, to MarTech, to the websites build their platforms. So we think this is a big opportunity. Just so you know, today, partnership-driven subscribers is -- a teeny fraction of our sub base comes in through partnerships, and we believe that it can be a substantial acquisition channel for us in the coming years.

Great. That was great color. A couple of years ago, when you first came to the conference, you talked about long-term gross margins and EBITDA margin targets of 70% and 20% plus, respectively. Can you give us a sense how you're framing the long-term margin potential for the business now? How the growth you've seen in the last few years measured against some of the planned investments you plan on making? Sort of how should investors broadly think about the trajectory towards maybe some of your longer-term margin goals versus going after the opportunity that's in front of you over the next couple of years?

Yes. I mean, look, I think the targets that we gave, I think it was 70% gross margin, 20% plus EBITDA margin targets. Look, I think those are -- we're very likely to feel like we can move those -- we can achieve those faster since the pandemic. I mean you can obviously see in our numbers today. We're growing nearly 50% on revenue, and we were profitable in Q3 despite that not being our goal. So certainly, I think those targets feel -- the time line for those targets feel like they've moved up. But our approach generally on sort of how we want to grow and create value for Vimeo really hasn't changed, which is we aren't focused or optimizing for EBITDA. We're focused on sustainable growth. We're focused on just sort of the best product that can be a winner in the market in the long term, and we are focused on unit economics. And so as long as we're able to grow our gross margins and -- which we have been doing sequentially and which we will continue to hold ourselves to do, as long as we're able to grow our gross margins and as long as we're able to invest sales, marketing and R&D dollars within sort of an appropriate range, so that our unit economics we feel like keep up on a very good track to profitability, then we're going to look to grow. And that's just because this market is completely open and it's changing. I mean look at how much has changed in just 6 months. Look at how much changed since you and I last spoke. And we're just so uniquely positioned. So I think you're going to see us play offense, not defense in this market. And we will always be rigorous and disciplined about unit economics, but we're not focused on near-term EBITDA.

Fair enough. Maybe with just a few minutes left, we could tie up a couple of bigger themes along the end of your sort of answer there. When you think about the landscape, and again, what you're sort of going after and solving for, how do you think about M&A as a potential part of the tool kit, the age-old sort of buy-versus-build decision when you're thinking about geographies or product innovation? And then broadly, to wrap it all up, you've laid a lot of groundwork for what you're excited about for '21. But maybe just thematically bring it all together about how -- what's your top focus, what's your top priorities as you look out to '21 and beyond in terms of building this business as well?

Yes. So look, I mean, obviously, like many IAC-owned businesses and just like we've done in the last couple of years, M&A has been sort of a lever we have used. It's opportunistic. Everything that we think about from a planning perspective is organic. But of course, I do -- we are constantly looking at the market, looking at what other players are doing and thinking about whether there's an opportunity to leverage M&A. What I'll tell you, I think, right now is the criteria that sort of we're most interested in are going to be things like access to proprietary technology that you can't just throw people at and they get built. So it's -- the reason we acquired the company Livestream in 2017, Vimeo -- we could have built our own live streaming capabilities, but to do it with the level of quality that Livestream had done involved real IP and real institutional knowledge. And those are the types of acquisitions we like to do, just do the same thing. There are creation tools out there, but there was nobody else that had spent 10 years perfecting the use of artificial intelligence to make video creation extremely simple. And so you'll see us always look for opportunities across the spectrum for enterprises, for SMBs, for every kind of video use case. You'll see us look for opportunities where we can acquire technology, institutional knowledge or talent that just really helps our technology and products be more innovative and more effective than we could just do on our own. And we'll always look to take advantage of that if an opportunity arises. And then, I guess, your last question was just sort of more broadly, what are we most excited about? And look, I'll say, I think this is Vimeo's moment. We have been building for the last 3 years that we could have the broadest, most robust professional video solution for businesses out there. I think the sort of demand came a little earlier than we had expected, but we're -- we feel really well positioned. And so as I said, we're focused on being the video software used by every business in the world. The areas we're most excited about is being the single corporate video solution for every enterprise and enabling every small business to take advantage of the power of video. And you'll see us invest in R&D and sales and marketing and international expansion to do that.

All right. Well, it sounds like -- you had a very exciting 2020. It sounds like you're going to have a very exciting 2021 as well. Anjali, thank you so much for being part of the UBS TMT Conference this year. I want to wish you and your family a good set of holidays in the coming weeks as we close the book on 2020. And in closing out the session, I do want to apologize again to all the clients and the companies with all the technical issues we've had so far today. Hopefully, we're going to get them sorted out by this afternoon. But thank you for the team from IAC, always being generous to make yourself available to be here at the UBS conference. Thanks Anjali. Stay well.

Thank, Eric. Happy holidays.