Following an inauspicious start to life on the public markets, Vimeo (VMEO) shares clawed their way up during June. Interestingly, however, the stock’s rise coincided with revenue deceleration, although Truist’s Youssef Squali says the drop is nothing to be worried about.
“Vimeo continues to see strong demand for full-service video solutions,” the 5-star analyst reassured, “However and as expected, the M/M trends show deceleration as the company laps tough y/y comps (inline with commentary from management).”
The video-software company has released month-over-month metrics for only the second time as an independent entity since being spun-off from IAC.
In June, revenue grew by 41% year-over-year, slightly below the 42% uptick in May, and a way off the average 57% growth exhibited throughout the first quarter. Subscriber growth of 17% was also just below the 18% increase in May. ARPU (average revenue per user) grew by 20% in June from the same period last year and actually came in higher than the 18% rise in May, although once again the figure was below the average of 27% growth in 1Q21.
“Importantly,” Squali added, “QTD revenue growth trends show Vimeo tracking virtually in line with estimates, slightly below ours of +44% and slightly ahead of Street’s expectations of +42%.”
The deceleration doesn’t alter the big picture, says the analyst, who thinks that through product innovation and increased enterprise video use cases, Vimeo will continue to take share of its large TAM (total addressable market). As such, the company is focused on growth and grabbing a bigger piece of the market, rather than reaching profitability for now. In fact, over the next 5 years, Squali expects the company to “sustain growth” of ~30% with margins improving to over 20% during the period.
All in all, Squali rates VMEO shares a Buy, along with a $54 price target. This figure implies ~11% from current levels. (To watch Squali’s track record, click here)
Overall, Squali’s colleagues agree with his thesis. VMEO stock has a Strong Buy consensus rating based on 4 Buys vs. 1 Hold. The average price target is slightly above the Truist analyst’s; at $55.50, the projection is for 12-month gains of 14%. (See Vimeo stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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