Vimeo is known as a destination for music videos and indie movies, but all those viewers lapping up ad-free content aren’t paying the bills.
Instead, Vimeo has looked to the other side of the equation to make a business out of all those eyeballs.
IAC/InterActiveCorp.’s IAC, -0.46% Vimeo has managed to survive in the age of YouTube and Netflix Inc. NFLX, -1.50% by taking a much different approach than the media giants. Rather than show advertisements to viewers, the company has opted to generate revenue on the back end, charging content creators for tools that allow them to edit, store and share videos—even to Alphabet Inc.’s GOOG, -0.28% GOOGL, -0.30% YouTube, a one-time rival.
The result is a more stable business model built on recurring software revenue. Vimeo generates the bulk of its revenue through subscriptions and is now focused on attracting additional “high-value” enterprise customers who might be drawn to live-streaming capabilities and other more advanced features that go beyond editing and storing.
“Video is becoming more and more not just a tool for marketing,” Vimeo Chief Executive Anjali Sud told MarketWatch. To that end, the company sees market opportunity in helping larger companies securely broadcast everything from events to all-hands meetings, while taking audience questions and providing engagement metrics.
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The company has a unique relationship with YouTube, after beginning its life as a competitor to the Google-owned platform. A few years back, Vimeo planned to buy up original programming in an attempt to become a content hub, but the staggering costs of such a strategy made Vimeo abandon that plan and instead shift toward becoming what Sud calls “the Switzerland for creators” through its software offerings. Vimeo doesn’t mind if users post their videos on YouTube, Facebook Inc. FB, -1.31% or other social-media sites, so long as they edit and store the footage on the company’s own platform.
Enterprise customers were Vimeo’s fastest growing segment from a revenue perspective in the latest quarter, according to IAC Chief Financial Officer Glenn Schiffman, though the segment still only accounts for a relatively small piece of Vimeo’s overall business. The company saw an 8% bump in subscribers during the period, while the average revenue per subscriber climbed 16%, as Vimeo benefited from a greater mix of high-price enterprise purchases.
The company charges $7 a month for its basic “plus” package, which provides analytics, social-sharing capabilities, and storage for a single user. Vimeo’s “premium” package, its most expensive listed option, goes for $75 a month and allows for unlimited live streaming, team collaboration tools, and the ability to conduct polls during live events.
Vimeo could generate $188 million in annual revenue this year, predicts Cowen & Co. analyst John Blackledge, up 18% from a year earlier, though he expects the company to remain unprofitable on the basis of earnings before interest, taxes, depreciation, and amortization (Ebitda) through 2022, as IAC continues to invest in building the brand. He projects a $34 million Ebitda loss for 2019.
Though Vimeo isn’t profitable the way IAC spinoffs Match Group Inc. MTCH, +0.08% and ANGI Homeservices Inc. ANGI, -0.38% are, the unit was the fastest growing IAC segment in the most recent quarter, with revenue up 23%.
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While Vimeo is trying to grow its high-end customer base, it’s also investing in new ways to attract smaller customers, including restaurants and shops. The company recently purchased video-creation platform Magisto and plans to start offering Vimeo customers the ability to quickly build projects using stock footage and templates.
Previously, Vimeo focused more on editing and storage than on content creation. Magisto is intended to be a “top-of-the-funnel driver,” Schiffman said, making new customers aware of Vimeo’s broader suite of services that would allow them to share content on social media as a means to grow their brands. The platform had about 200,000 subscribers at the time of the acquisition, he added.
Sud said much of Vimeo’s sales force is focused on “inbound” inquiries, dealing with existing enterprise customers who are looking for additional features from the company that might not be publicly advertised.
“What’s so powerful about this is it’s a great way for us to get insight into what could be a market opportunity,” she commented.
Sud likens Vimeo’s role to that of website-building platforms like Wix Inc. WIX, -0.62% and GoDaddy Inc. GDDY, -0.77% years ago. “It used to be a crazy thing to think that any individual or small business could have their own website, but now having one is table stakes for being in business,” she said. “We think the same thing is happening in video.”
She cites statistics indicating that videos on the Facebook platform generate 75% of their lifetime views in the first four days after they’ve been posted, which suggests to Sud that “the shelf life of a video is getting shorter and shorter.” Sud pegs Vimeo’s total addressable market at $20 billion.
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Instinet analyst Mark Kelley expects that Vimeo’s bundled offerings will continue to attract small-business customers.
“The advantage for Vimeo is that if you’re a producer, it’s way more expensive for you to go out and piecemeal everything that Vimeo offers, including storage and editing,” he told MarketWatch.
A recent goal has been the expansion of Vimeo’s distribution options. The company hopes that yoga instructors and other entrepreneurs who have been counting on YouTube ad revenue from their videos will consider alternative revenue sources, perhaps using YouTube to tease their content before building out subscription offerings through Vimeo. The company lets users build over-the-top apps for Roku Inc. ROKU, +3.15% and Amazon.com Inc. AMZN, -0.62% streaming platforms and charge customers to access to their video libraries.
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Though Vimeo is tiny compared with the giants of digital media, it may be able to ride their successes by playing nice and cashing in on the software wave that has captivated investors in recent years. IAC shares have gained 23% so far this year, while the S&P 500 SPX, -0.73% has climbed 19%.
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