Vimeo.com, Inc. (VMEO) Earnings Call Transcript & Summary

Welcome back, everyone. We're pleased to have Narayan with us, CFO of Vimeo. Narayan has held numerous positions in tech at Intuit, Microsoft, Skype and Cisco. Really appreciate your time and perspective.

And maybe just to kick off, everyone kind of wants to understand what it's like to be a monthly reporting company, not a quarterly reporting company. But just on the monthly number, I guess, there's obviously a lot of concern with the stock down today on just the overall trajectory of the decel. And I know you've guided to this, and we're all expecting maybe a little bit more. But when you think about what's going on, is the world reopening had that just much more pronounced impact on the numbers than you thought? Or is this kind of as expected? Give us your sense of the wide path that you are anticipating based on what's happening?

Thank you, Brent, and great to see you again. Yes, in terms of the monthly metrics, this was exactly what we had thought about when we gave the guidance last month, I guess, no. What we had talked about was that for Q3, we expect the revenue growth to be in the low 30s, and we are right in that space for Q3. And we expect Q4 also to be what we have guided, which is slightly below 30% or high 20s. So in that range. So we will be in that -- we feel very comfortable with that guidance. And from our perspective, nothing has really changed from the time we gave that guidance.

Maybe there's just a disconnect from what we're all thinking versus what you're seeing, and I think you've been pretty clear, is expected. But I guess to push back, many investors are saying, well, hold on, we're seeing in a lot of end markets and software acceleration. We're seeing demand go up. You're seeing companies like Asana accelerate growth quarter-on-quarter, Monday.com, there's a lot of companies that are seeing this. And I guess the question is, everyone is asking what is it -- why you wouldn't see this based on everything that's going on? Is there something in terms of the go-to-market that isn't maybe ready to roll yet? Is there something competitively happening? Or is it just merely, hey, look, we're all -- the world's opening, we're traveling. We're getting out. We're doing live meetings now. We're not maybe consuming as much video. What -- if you had to put your hand pulse on it, what do you think is really is happening?

Yes. I think there are 2 components to it. One is what you just said. I think the world is starting to open up. So there is definitely an impact from that. We talked about that during the earnings. There is less demand coming at the top of the funnel for some of the use cases live streaming, both on the self-serve side and on the enterprise side. And the other part is that we saw a significant growth last year. So this is just a comp issue. As we look at comparing growth against last year, we are seeing the growth rate to be under pressure this year, and that should work itself out over a period of time. Now what we are seeing is, in terms of demand, during COVID, the demand really peaked. It went significantly higher from where it was pre-pandemic. That demand has come down from there, but it is still higher than where -- significantly higher than where it was pre-pandemic. So it does bode well long term. I think we are very comfortable with our projections of about 30% growth rate in the medium term. Nothing has changed. And in fact, what we are hearing from our customers is validating and confirming our hypothesis that this is a long-term trend and not just onetime blip. More and more use cases are opening up for video. In fact, a couple of months ago, we integrated with Asana on -- natively integrated video and Vimeo into their workflows. It shows that video can be part of many of the workflows within an enterprise, and project management is just one of them. There are many more opportunities for us to integrate into many workflows. And as we were -- we knew that there were many use cases that video can benefit, and now these are crystallizing some of those opportunities. And we believe long term, this -- Vimeo can grow 30% over the next 5 years.

We had a chance to meet the CEO of Adobe recently, and I asked him a question about video and his eyes lit up and he said, we need to do more. And a week later, they bought a company Frame.io for over $1 billion. And so there's been no question, consolidation and excitement around the category of video. Many are asking, with the frame acquisition, does this change anything for you guys? Is this -- was this outside your scope? Do you feel -- it feels very complementary, but some are concerned, could this mean a more competitive landscape against Adobe?

Yes. I think it makes a ton of sense for Adobe on the Frame.io acquisition. We have followed Frame.io for some time. Back in the day, many years ago, when we were addressing the creative professional market, we could say that maybe Frame.io was tangentially competitive. Not anymore. Our focus is on the everyday employee, the regular employee with an enterprise, while frame.io is squarely focused on the creative professionals. They help moviemakers, filmmakers, creative professionals, the higher end of the market. They're very much integrated with Adobe, and it makes perfect sense, but not really the market that we are in. For example, Vimeo Create, our creation product is helping small business owners like a mom-and-pop shop and a laundromat owner to create 2- or 3-minute videos for advertising on Instagram and TikTok and Facebook. And that's how we think about helping a broader segment of small business -- small and medium business owners to attract and retain customers. A very different market than where Frame.io is.

I got my Vimeo Create opened, Narayan, I paid -- and I'm trying to plan a ski trip and now to put a mountain of Aspen in you're charging me -- cross-selling me up 20 -- 4 to 5x that just to get the video of the skiers on. So yes, the creative cross-selling to get pricing higher, so -- but we're paying it. So it's up and live.

It's good. You should -- yes, you sign up for the enterprise account also at the Jefferies. We can make it much easier for you.

Can you offer some discount codes for our listeners to try it out?

Yes. I know some folks who can help you with that. So yes, let me know. I'll do that.

Away from the consumer side, which, again, it's a really compelling experience. I've been playing with it. I haven't really gotten super deep yet, but I am a paying client. When you think about the enterprise opportunity, we've consistently said our firm is a great candidate. And I know I was going to be on the line again right after trying to follow up on this. But when you think about what's happening on the corporate side and what we're all struggling with -- for example, this conference, we have this conference. We want to have it on replay. We want a central repository, jeffries.com/software, and they could go and look. I mean it doesn't exist. And so this, to me, is a incredible opportunity. When you think about the weight and energy you're putting into the enterprise to capture this with library and other advanced features. Can you walk through the steps that you're taking to unlock this? And this kind of ties into investor questions, which is back to this decel, and I don't want to focus on the decel because the growth rate is still very good. But there is some questions of, hey, if you maybe had the enterprise go on a little bit sooner, could have it helped out on maybe the broader market slowdown? Is this something that can really help provide another engine to offset any kind of consumer small business weakness? And I'm not saying that's where it's coming from, but your thoughts on the enterprise engine going forward.

Enterprise growth -- enterprises continue to grow extremely fast. So we're very excited about that opportunity. And you're absolutely right, video library is, we believe, a significant catalyst for the growth. If you think about where videos live today, many videos within an enterprise setting, many videos live on the hard disks of computers that employees have. Many live in e-mail. Some live in cloud, Dropbox and Google Cloud. It's complete. It's very dispersed. It's very hard to find a video when you want to find it. And it's very hard to actually go and find within the video of what you're looking for. What video -- Vimeo Library provides that system of record for curating and capturing all the video content across the organization and not just having it all in one place, but you can have it in -- by department, by content, by topic. And you could search for the video, and you could search within the video. For example, this conversation what we are having now, a year from now, Brent, if you want to go back and say, look at what did Narayan say about growth rates. You could just type growth rate, and it will bring us to this moment in the conversation because it's all transcribed and searchable. It makes it so much more easier if you have a video library. So we believe that this is going to be a game changer for many enterprises as employee creative videos are going to proliferate. It has already started to do that. And how do you manage all of these things? And how do you make it affective and efficient for employees to find what they're looking for? So this is a great use case. I believe it will be the system of record for all videos across the organization. And in many ways, it is opening up new TAM for us. For example, there was a financial institution in Europe who purchased Vimeo last quarter. They didn't have a use case for live streaming, which was prior to Vimeo Library and Vimeo Record, was the only solution that we sold to enterprises. So this customer didn't have a use for live streaming at all, but they needed a tool to actually have all the videos in one place. So it was significant ARR transaction and something that we couldn't have sold a year ago. So it really opens up new TAM, opens up new use cases. And for us, once we have all the other use cases that we have talked about, the live streaming that we have had in the past for a period of time, Vimeo Record, we have talked about webinars and live events, all of these things, Vimeo library can tie it all together in 1 repository hub, if you may call it, of all the video content. So very excited about this. And there's definitely more products and use cases to come.

I think you've said in the past that the enterprise business is largely a startup. It's only been around kind of 2 to 3 years. What are the next pieces you need to land to really give you that turbo boost in the enterprise?

I think what we are seeing is that there are some use cases, we believe that we can make a significant change as to how that use case, that problem is solved today. Webinar is an example. We have all the components to make the webinar experience much more interactive, much more engaging and much more impactful. So we will be rolling that out soon. Live events, that's another opportunity, which is, in many ways, has exploded during the pandemic, and we believe that will continue to be at a high growth rate. Again, with all the components that we have, the strength of our platform, we can solve that much better than anybody. So those are both 2 very exciting growth opportunities, both vectors for us. And both of these are for this year. And then in '22, we'll have many more use cases that we will be -- we haven't publicly talked about our road map for the future, but we will as we get closer to '22. And the other thing to keep in mind is that what we are seeing is that there are more newer use cases that are coming up, historically, it hasn't been there. A couple of months ago, we announced our partnership with Asana, where Asana customers can natively integrate with Vimeo and create videos they are using to give product updates, demos, things like that. So again, it's a crystallization of what we have talked about that every employee within an organization should be able to use video, but it makes it a lot more tangible. This is a use case that's very prevalent in all enterprises, project management use case. And Vimeo can be integrated into that. Similarly, if you think about all the other things that -- work streams that happens within an enterprise, in many of them, there is an opportunity for video to be natively integrated and Vimeo to be natively integrated and provide more utility and more engagement and more -- make it more effective. So we are very excited about all of these things, especially as new use cases are popping up every day.

I know we're not here to unveil new features or talk about way out in the future, but one futuristic question that I get is, there's some incredible content on your platform. And at some point, you could believe while they're using you, and they're paying you to store and manage these videos. Could you create some type of bigger marketplace over time? And I'm curious your thoughts on how you think about that. And ultimately -- what ultimately all this content could be over time? It seems your brain can run well in terms of the thing you guys could do.

Definitely an opportunity, but that's not what we are really focused on right now. As I said, there is so many use cases and so many opportunities in the enterprise space. and in the larger all the way from small and medium to enterprise space. So our mission is to help all businesses succeed with Vimeo. So there is plenty to do a lot more use cases to solve and solve better than what others have done. So that's what we are really focused on at this point. So not in the immediate future.

And that's just because the TAM and the opportunity set of running is just to ridge to make that move right now?

Exactly, exactly.

Yes. Stay focused and don't try to juggle too many things.

Yes.

When you think -- one of the other questions we get is just around the cost structure and your ability. I think you became accidentally profitable earlier in the year. And many have asked with video, it seems like it's inherently harder to manage, it's high cost. And I think -- correct me if I'm wrong, but you're partnering with the company that has figured out how to make YouTube scale. So Google can make YouTube scale, they can probably make their partners in video scale. Can you just talk to the Google partnership? And how they're helping you scale this in an efficient way?

Yes. Google is a great partner. We have been working with them for many, many years. We continue to innovate on their platform. Their innovation continues to help us keep the cost down. In terms of cost structure in itself, we have given guidance of about 75% gross margin in the medium term. We feel very comfortable with that. We'll probably reach that faster than the 5 years that we had talked about, but we'll continue to operate. From a gross margin perspective, we believe that we can get to a software level -- typical software level gross margins over a period of time. So we feel very comfortable with that. In terms of overall profitability, yes, we are continuing to invest. Hiring. We were about 700 employees at the end of last year. We are north of thousands. So we essentially have added more than -- added about 50% more employees in the last 7 or 8 months. So quite a bit of growth. Hiring is -- we are finding, it's hard. In some areas, we are on target and potentially will exceed, sales being an example. In some areas, we haven't made as much progress, and it's on the engineering side. So we are slightly behind hiring there. So in terms of profitability, we will be right around plus or minus a few million profitable or unprofitable in that range through this year. And -- but our focus is on investing. BC, as we've talked about, there are many more use cases coming up. So we want to make sure that we invest in making -- in creating and developing those markets as well as continuing to invest in the spaces where we believe we can and we can continue to innovate. So we are not clearly looking to optimize for profitability at this point in time, but to really capture the market and continue need to solve the use cases that our customers are asking us for help with.

Yes. I think many are trying to get to know kind of your process and your thoughts, and I think we've all kind of become to realize like we need to listen to what you say rather than having our own inputs because what you're seeing is what's happening. But I think there are kind of many questions around the guidance principle, which is, a lot of CFOs have given a lot of wiggle room, you're effectively at least to the guide, it seems like you're -- like this is what's happening, and it's happening. But many have asked like it doesn't -- has there been some wiggle room that you've been able to put in to give yourself some room to breathe on that? And I'm curious your thoughts and philosophy around guidance and how you're doing it?

Yes, you're right. We have been -- we have approached this from a perspective of we are going to be very transparent. That's the reason why we are publishing the monthly metrics to give you as much real-time information as we get it, to give you -- we published our monthly metrics yesterday end of day. We've got to see that over the weekend and Monday morning. So it's real-time information that we are sharing. We are not thinking about it in terms of the beat and raise kind of an approach. So that's the approach we have been taking. And you're right, we have said our guidance has been to what we saw and as things change, we will make sure further, we communicate that clearly. So please to listen to what we are saying. And as I said earlier, our guidance for Q3 and Q4, we are very comfortable with it. We believe that we can hit those guidance that we have provided. So we are comfortable with it.

Yes. I think - I mean Wix's good any square space. They've all kind of tapped their rigs or there breaks maybe came out harder. It seems like SMBs have -- were kind of stampeded because they end to other choice. And now they're opening stores again. They're trying to get inventory, and they -- it's still important, but it seems like they've had other issues come to the forefront. And do you think that's some of what's going on, where there's -- these SMBs are just effectively, they were -- many of them open -- operate store -- physical store fronts and as a family owner of a store that's how we've treated it, too, right? The customers walking through the front door are more important than maybe the website right now. And so is this something that you feel is kind of -- it seems rational and ultimately, they then come back. And then you've got the other engine potentially as the enterprise comes online, that's another catalyst.

We haven't seen a broad slowdown on SMB. We have seen, as we talked about in the earnings call, some softness on the live streaming use case. So I think part of it is that anybody who wanted to get into the path, at that point in time, did subscribe for live streaming last year when -- at the peak of the COVID. So we did see some of that peaking in 2020. So there is less demand this year. And it's a comp issue. I mean it's a comparison to last year. Over time, that should go away, and we should get back to more normalized time. And I don't think the live streaming is going away. I think people have found the power of live streaming and video in general, the digital acceleration is real. So it is happening. The comparisons do hurt a little bit, but I think it should work itself out over the long term. And that's all -- we have factored that all into our guidance and our expectations for the rest of the year.

Many have asked, you had a great parent with IAC. And it's kind of like going off to college. Is it, it's your off, you're doing your own thing now and you maybe -- they weren't in your kitchen and asking if your homework was done. But has life changed at all for you since the spin? Or how would you characterize?

Yes. I think it is a big change, being a public company and having to do all of these things is definitely a change. On the positive side, we have our own currency. We have our own of KPIs and goals that we can set for ourselves and exceed. And -- but on the downside being a public company, there is a lot of expectation, as you rightly pointed out, the stock took a hit when we were -- our monthly metrics were right in line with our guidance. These are some of the things that we didn't have to deal with when you were within the IAC umbrella. But many of -- IAC has been a great parent for us. Many of the values and principles they have enculturated into us, continue to drive. We have very long-term focus. We are not really focusing on the monthly or daily stock price fluctuations. And we really want to build a company for the ages. This is a market that is still very, very young and underpenetrated, a huge opportunity. And we are at the leading position at this point, and our focus is to invest and continue to gain market share in this market.

There was a client question as it relates to Kaltura and where you see them? How you're different? Can you just maybe elaborate on the different approaches?

Yes. I don't want to specifically talk about 1 competitor or the other. But if you think about more of the broader legacy online video provider market, we are quite different from that. One, our technologies is much better. Our UX and -- is much better. Some of the legacy providers' technology is clunky and hard to use, many of them relied heavily on professional services and on-site deployment. We are a fully SaaS product. Our pricing is very competitive compared to the pricing of some the competition. And our time to value is much, much better than some of the other providers. We feel very comfortable going head-to-head with some of the legacy providers.

Narayan, I always appreciate your time. Thanks for joining today, and I look forward to stay in touch.

Thank you, Brent. Great to talk with you as well.

Thanks, everyone.