People Incorporated (IAC) Earnings Call Transcript & Summary

Hi. Thank you, everyone, for joining today's fireside chat with Anjali Sud, CEO of Vimeo. We're planning on having a discussion on Vimeo's history and evolution, the video content creation opportunity, including the impact of the pandemic, Vimeo's growth strategy and current trends. My name is Mike Ng. I cover IAC at Goldman Sachs, and I have the privilege of moderating this discussion with Anjali. We have 40 minutes today, inclusive of audience Q&A. [Operator Instructions] First, Anjali, I want to thank you so much for participating in our conference and making yourself available for the fireside chat. I think I speak for everyone listening in when I say we really appreciate all of your time and for you offering your insight. To kick things off, I was wondering if you'd be able to talk a little bit about Vimeo's history, the pivot from being a content destination to an end-to-end content creation platform and the opportunity there.

Sure. And it's great to be here. Thank you, Michael. So Vimeo is a 16-year-old platform. And for the first 13 years, we really were a video viewing destination, similar to YouTube or Facebook. We didn't monetize through advertising because our users tended to be professionals, filmmakers, folks that wanted control over their content and experience. And that was sort of what we did for a long time and, actually, probably what most people today still think we do and know us for. Then in 2017, a little over 3 years ago, we made the strategic choice to shift and to pivot our strategy away from being a destination and to being a B2B SaaS technology platform. And the impetus for that change was a hypothesis that we had about the market. And the hypothesis was that the same way that video has been such a critical form of entertainment and personal expression on our phones and on TikTok and in Hollywood, that video was going to become a primary way that businesses communicated, that actually video could transform how business is communicated, by making it possible for them in a more engaging and in often like cost-effective way to reach their customers online and wherever their customers were, on social media platforms, on their websites, as well as internally to engage with their teams to share knowledge. And it seems obvious that I say that now, but back in 2017, it wasn't so obvious when that market demand would show up and how big it would be. I think since the pandemic, hopefully, for most of us, it's noncontroversial today, but we've certainly seen that hypothesis realized in the demand from our customers. And today, we see everyone from small businesses who rely on us to create videos for Instagram, to stay engaged with their customers, to put videos on their website, product demos, support videos, et cetera, all the way to large Fortune 100 companies who are using Vimeo to do everything from onboard and train employees, host and run town halls and conferences and power their marketing departments. So I think -- today, I think about the market, and I sort of see as every professional team and organization in the world is our TAM. We think it's a $70 billion market by 2024 driven by both small businesses and large enterprises. That's full spectrum at different price points willing and eager to use video. And this is a -- it's an exciting year for Vimeo. We've raised capital. We're investing quite a bit in growth across product, sales, marketing. And I sort of see it as it's a very early market still. We have a pretty substantial head start, I think, because we pursued the strategy so many years ago. But it's sort of upon us to really get the product to be as great as we sort of imagine and to really simplify video so that it can really work for any business, and that's what we're focused on.

Great. That's a really fantastic overview, and I want to dig into a lot of those points. Maybe just to start out, are there any surprising opportunities that emerged during the pandemic? And to level set, could you talk about some of your more recent 4Q results and your outlook for 2021?

Sure. I would say, for the most part, the use cases that we've seen since the pandemic are the ones we always imagine would be needed and we're building for. It's more that we just saw this sort of a really quick acceleration in the demand. But we always -- we acquired a company called Livestream a few years back because we believed that most businesses were going to need to live stream events and internally because teams were going to be distributed. And certainly, we're seeing that in a pretty material way. We launched the ability for gyms and fitness studios and yoga instructors to build their own video destinations and charge for their classes and their content. And we've certainly seen a big influx of that. So in many ways, I would say that the actual examples are not that surprising, but it's more the just -- the sort of volume of that demand and how transformative it has been for these customers. So we have performing arts venues and cultural institutions and gyms who are now connecting the audience that they were originally reaching because they're not constrained by geography, which is really -- I mean that's something we kind of always hoped would happen, but it's incredible to see. And we have large organizations and companies like Starbucks and Rite Aid and Lowe's who are now training store associates in hundreds of locations in a much more scalable and engaging way at a fraction of the cost. And so if anything, I would say what's been surprising is just a clear ROI on these efforts. And I think it's just very validating for the future of our strategy. As it relates to the business, we've shared our Q4 numbers. We've seen acceleration, I'd say, in all key metrics: revenue, bookings, subs, ARPU, gross margins. And within that, our enterprise business has accelerated growth. I think it's the sixth straight quarter over 100% year-on-year growth, lots of opportunity there. So generally, very strong results. January looked good, continue to see demand at an elevated level, and we have a lot of growth levers that we're executing on. In terms of outlook, that's always the hardest thing in a pandemic because the big question is how does demand sort of play out over the year as the world returns and what level does it settle at. And I can't predict what it will be. I have a lot of conviction in the use cases that we're seeing and what we hear from customers that it will be at an elevated level and that we will be -- our growth trajectory will be greater than where we were pre-COVID. Pre-COVID, we had shared 20% to 30% growth, revenue growth, as our sort of sustainable growth rate. We think it will be higher than that. How much higher is the question. And then I think the only other call-out, which we've shared, is just that we will be lapping sort of the big spike we had from COVID in March, April. And so we do expect that to have some impact on our growth. Again, hard to tell and predict exactly what, but because of the sort of nature of our business, we are primarily annual subscription plans, we don't expect that you'll see that necessarily in the P&L until later this year. And more importantly, this is an investment year for us. We are making a lot of really exciting improvements and innovations to our product this year that we do expect will -- you'll see the sort of results of that in our P&L in 2022 and 2023. So we're really focused -- it's the early market. We're really focused on the long game. And we think we have the best product and solution today. And we think we can turn our lead into a sort of definitive competitive advantage in the next years. So that's really what we're going to be focused on and then accelerating growth from there.

Great. And I think I have these numbers right, but I think Vimeo has about 200 million members today, 1.5 million paid subscribers. The majority are, I think, creative pros. Can you just talk about how you see the makeup of your subscriber base changing over time? And where do you see the majority of subscriber growth coming from, either through the immediate future or longer term?

Sure. Yes, the one correction I would give is today, we're actually now -- the majority of our paid subscriber base, that 1.5 million, are businesses. At one time, it was majority creative professionals, and that mix has been shifting steadily every year. Pre-pandemic, post-pandemic, it just continues to shift, and it is something that drives ARPU as well as revenue growth for us. So today, the majority of our new subscribers are businesses. Within that, the volume of subs tend to be smaller businesses because there are just more of them out there. So if you actually look at our subscriber base, a very small percentage are enterprise customers. But their ARPU is significantly higher, 20, 50x what we have on the self-serve side. So -- and we see a lot of room to expand our offering within those organizations. So I guess zooming out, the way I would see it is we have -- we are -- we have a B2B strategy that the businesses we will look to serve range from an entrepreneur to a growth-stage startup to a Fortune 100 company. And you will see our subscriber and customer base mix shift and continue to shift towards those groups. And then what I would expect is that our biggest driver of ARPU will come from the enterprise, and the biggest driver of sub volume will come from small businesses. And the net effect of that will be, I think, strong revenue growth driven by both subs and ARPU.

Great. And could you just describe the freemium model a little bit more? I know that there's been a strategy to kind of land and expand as you go upmarket into enterprise. Where are the opportunities to bring subscribers up to higher pricing tiers over time?

Yes. I think it's the biggest opportunity that we have. And I think what we're trying to do is build an enterprise software business at consumer scale, which is something very few platforms can do, and if you look at outside of video, some of the best SaaS companies in the world have really managed to do. We think we have the ingredients to do it. And we think we have the ingredients to do it because we already -- even without everything optimized and all the right products mechanisms, we're already seeing it in the funnel today. So 60% of our 1.5 million subscribers started as a free user first, meaning they created a video for free or recorded a video message or uploaded a video to host. And then they, after trying and using the product, decided to pay us to unlock more capabilities. We think there's plenty more opportunity there. In particular, we've been launching more tools to enable easy video content creation for free. And so now it's really about getting people to just start making video because that's the biggest barrier and then from there, getting them to see the other value that we offer as sort of a monetization lever. And so that's one piece of it. Then you look at the enterprise side, and even today, 60% of that business is coming from free and self-serve customers. And we know among our base, nearly 70% of Fortune 500 companies have a corporate account on Vimeo. The majority of those accounts are either not paying us anything today, they're free, or they're paying us a couple of hundred dollars. And we know that we can -- when we know who they are and our sales team can go talk to them, we know that we are able often to convert them. An example would be this quarter, Pepsi started as a Vimeo premium subscriber, so our self-serve tier, and now is using us on the enterprise side to do everything from CEO town halls to department trainings and events. So I think there, the opportunity is continue to expand the product suites. We can offer enterprises more of the right things and then get better at identifying who in our free base is a qualified lead and having the right sort of bottoms-up product mechanisms that naturally get them to move up tiers and then for us to be able to say this person is someone who should go over to sales. So that's really what we're trying to perfect. But we have all the pieces. We have the large free user base. We have qualified users. And we have a need that we believe can easily be solved across these different parts of the funnel.

Great. I wanted to talk a little bit more about enterprise, and that was a really great overview. I think this is a segment that grew revenue 100% year-over-year in 2020. Could you just provide an update on the size of the enterprise sales force? I think you just mentioned that 60% of your enterprise customers are still self-serve. So does that mean it's mostly inbound? How would you describe kind of your outgoing sales effort on the enterprise side and the opportunity there?

Yes. So I think we've shared that the size of our sales force at the end of 2020 was around 100 people. And that includes not just sales reps but also folks supporting our sales reps: account managers, customer success, sales operations. We are growing that base substantially this year. And we're growing it across the board. It is -- we are majority inbound today. We have done some good work to kind of plant the seeds for a good outbound effort. I see a lot of promise there, and we will scale that effort. We're also expanding geographies. We've been very U.S. focused. We put a few people in the EMEA region last year, are seeing excellent returns and sales efficiency there. So you'll see us expand our presence quickly in EMEA. You'll see us build a presence in APAC, LatAm and a few other places where we believe we have product/market fit and there's a lot of demand, and we just need to serve it. You'll also see us in terms of our sales motion start to specialize more. We've been very kind of generic in our sales team and what they focus on but really start to specialize more into which department or use case are we serving, verticals, by industry, by which all of that as you scale, those are the natural things that you do. And I would say we're really early days in doing that but lots of opportunity. And ultimately, we'll look at our sales efficiency and our LTV to CAC. And just -- I think as long as we can kind of maintain what we think is a reasonable appropriate range, we'll go as fast as we can. And right now, probably the biggest constraint is hiring. But I think we're getting -- we're really starting to get quite good at hiring quickly, onboarding and training our salespeople using video and getting the ramp time to be shorter as well as increasing that efficiency.

Great. And who are Vimeo's largest enterprise customers today? I know you mentioned a couple. And are there any features that Vimeo needs to more aggressively invest against to better pursue the enterprise opportunity?

The largest customers today -- in terms of company size, we have very large organizations, the largest that you can imagine on the platform. And in terms of companies that are paying us the most, it's a pretty diverse mix, to be honest. And I think that's actually, again, indicative of the opportunities that we -- it's not like we're already -- so the largest companies really maximizing our monetization capability, I don't -- we are not doing that yet. And one of the big reasons is because there is quite a lot of product work to do to really be able to solve their needs. So our goal is to be the corporate video solution for how organizations share content internally and externally. And within that, every department has a set of needs. HR wants to train and onboard employees. Comms wants to make sure town halls and events are done in brilliant quality and are interactive and branded appropriately. IT wants to make sure all videos are housed in one central secure place. Marketing wants to make sure that they're able to do everything from produce videos every day -- their social media manager produce videos every day for social, put videos on their website, host webinars, run conferences and events. So in each of these areas, we have varying degrees of an offering or no offering or an MVP offering. And so there's quite a lot still, I think, that we can do to really, like, provide the solution. And I would just say our goal is to have the robustness and the quality of the capabilities at a very accessible price point and an extremely simple UX that doesn't require a bunch of training and that each person that I just mentioned in the department can just use. And that does not exist today, period. It's not in the market today. And I think we're quite close to being -- and we're certainly the closest to being able to offer it. And so you will see us ship a lot of new features and as well as improvements to existing features in the next coming quarters. That's why I say this is an investment year. It's really R&D is the biggest -- and product is the biggest priority. But I think we really have an opportunity to make video just much easier and help it proliferate throughout organizations.

Right. And that's a great segue into just a discussion about Vimeo's competitive positioning within the video market. How does Vimeo's legacy business as a content destination help with its strategy to be an end-to-end solution? And why do you think that end-to-end solution that can be used by all the constituents that you just mentioned, like why doesn't that exist today?

Yes. So I think for -- yes, for a long time, we were a competitor to YouTube. We are definitively not that any longer. And actually, it's a really important distinction because -- and it comes down to business model. The destination social media platforms are ad-based. They make money on advertising. And therefore, in order to make money on advertising, they need content and eyeballs to stay on their platforms. If you think about a business, most businesses, small businesses are looking to reach their customers. Marketing teams are trying to reach their customers. And their customers are everywhere. They're not just on YouTube. So of course, they want to reach customers on YouTube, but they also want to reach customers on Instagram and on their website and on third-party marketplaces. And it's really important that they be able to do that to be successful. And the incentives are actually quite misaligned between an ad-based business and that small business. And what we have, because we are a SaaS business, is the ability to really be an agnostic distribution hub where we can help you create content, optimized for each of these different platforms, and then distribute that content natively with one click from within Vimeo everywhere you want and to be able to track and optimize performance of how you're doing in terms of engaging your audience. And we do think that's a major differentiator. We also -- we allow you to fully customize and brand the experience. We don't own the customer. You own the customer. Social media platforms do not operate that way. If you use YouTube's embeddable player on your website, YouTube will play advertising and you don't control it. And it just will play, and that's how it goes. It's just a very different model. So I think we've been able to turn our kind of differences into a real sort of benefit to businesses that they need because right now, they need to be on these platforms to reach their audience that they can't. So that's really the, I think on the competitive side, sort of the opportunity. And you asked me a second question, and I can't remember what it was.

Oh, it was about what competitive positioning and why there isn't an end-to-end platform in the marketplace today, yes.

Yes. So we -- when we look at the breadth of our offering today, we believe we have the leading all-in-one video software solution. And honestly, I think the only reason for that is we are probably early in the market in seeing this opportunity. 2017, again, at the time, it was not obvious that every business and organization was going to be using video the way that they are today. Now it seems obvious, but it wasn't entirely obvious. And so in many ways, I think we had a head start. We were also very aggressive in quickly building out our product. We've done multiple acquisitions in the last few years with the backing of IAC, classic IAC fashion. We picked a category, and we were aggressive in kind of building that out. And the other piece of it is we have 16 years of IP and knowledge here. And that is not trivial. To have a video player at the quality that we offer, at the scale we offer, we can -- you can live stream a concert or a town hall to hundreds of thousands of people in TV quality, and that is hard to do. It takes real institutional knowledge, real IP, incredible like video technology talent. And we have all that. And so I would expect -- since the pandemic, I think the secret's out on this market that we were enjoying. I will expect more competition. Obviously, I think there's already a lot of start-ups that are receiving funding to kind of go after pieces of the market. But generally, what I see is features being built and a lot of depth and features. I think we have that really unique combination of depth but also breadth. And if you just zoom out 5 years from now, the same way that today you can create a website, anyone can create a website in a matter of minutes, in a couple of clicks, having -- using video for your business should be that simple. And the only way it can be that simple is if one solution allows you to do everything from create content to live stream, to host and distribute, to monetize. You have to be able to do it all in one. And so we believe strongly that, that all-in-one solution will be the determinant of the winner in this market in the long term, and we do have a pretty substantive head start.