Vimeo - Q1 2023

Transcript

Operator (participant)

Good morning, and thank you for joining Vimeo's Q1 earnings live Q&A. We're excited to be here in front of you. Before we begin, a few comments. First, this session will be recorded and available on the Vimeo Investor Relations site later today. Second, we will discuss Vimeo's outlook and future performance. These forward-looking statements typically may be preceded by words such as: we expect, we believe, we anticipate, or other such statements. These forward-looking views are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. We've also provided information regarding certain key metrics and our non-GAAP financial measures, including certain forward-looking measures. These should be considered in addition to and not as a substitute for or in isolation from GAAP measures.

Additional information regarding Vimeo's financial performance, including reconciliations with comparable GAAP measures, can be found in our earnings release and Vimeo's filings with the SEC, as well as in supplemental information posted on the investor relations section of our website. With that, I'll turn it over to our CEO, Anjali.

Anjali Sud (CEO)

Hi, folks, welcome to our live Q&A. Last night, we published an interactive video on our Q1 results and outlook. We hope you check it out. There's a lot of good info in there and even a fun quiz at the end to make sure we got the most important information across. I'm happy to say that we exited the first quarter largely on track to deliver our goals for 2023. Our first priority is to return the business to growth. We believe that we're on track to demonstrate bookings growth by the end of the year, both for the total business and for self-serve. On self-serve, we are cautiously optimistic. We believe we're executing the right levers across our funnel. We're seeing a stabilization of macro trends post-COVID that should help us further. On Vimeo Enterprise, we're excited by what we see.

Bookings growth accelerated for the third consecutive quarter, we believe we're growing faster than the rest of the market as our product increasingly wins with Enterprise customers. We think Vimeo Enterprise can become a very large business over time, we have a clear path to get there. Our second priority is to get more efficient and more profitable. Here we have a solid quarter, our third consecutive one of positive Adjusted EBITDA and positive free cash flow. We have $268 million of cash on the balance sheet, the flexibility to adjust our investments based on what we see. Right now, we think patience is warranted, we're patient. The punchline for the quarter is really so far, so good. With that, let's get into your questions.

Operator (participant)

Our first question will come from Brian Fitzgerald at Wells Fargo. Brian?

Brian Fitzgerald (Senior Analyst)

Thanks, guys. I wanted to, in the letter you talked about welcoming leading companies to the enterprise side of the business, Canon, UCLA, BBC, Warner Bros.. Is there anything to call out with how enterprise logos start and then ramp using? Is that changing maybe with the macro backdrop? You also highlighted continued strength in well, mid tiers. Does the mid-market progress differently than some of those larger enterprises, UCLA, Canon, et cetera?

Anjali Sud (CEO)

Yeah, sure. Hi, Brian. Happy to answer that. You know, I would say there's generally two use cases that enterprise customers are looking to use Vimeo for. One is marketing teams looking to use video more to reach and engage their customers, and the other is internal or employee communications. This is everything from training and onboarding employees to, you know, just live streaming town halls and just generally you have a more digitally native workforce, and helping them to engage with video more. Across sort of the different customer types, we really don't see a difference in those two use cases, nor do we see a difference in the types of products and features that those customers are looking for. It is video library, it's events, it's hosting and sharing and creation.

No major differences there. Certainly, the way we sell, who we sell to, the sales cycles, the decision-makers involved, whether it's, you know, a large Fortune 50 company versus a smaller one, that makes a big difference. Generally, our pricing strategy is based on seats. If you're a larger company and you're enabling many more users of our platform, you would over time pay us more. That's really the biggest difference. Last thing, you asked about macro and kind of what we're seeing there, and, you know, we're feeling really good on Vimeo Enterprise right now. I think we shared in the video we're not seeing major differences in sales cycles. You know, our pipeline's up really nicely year-on-year. Our win rate's up year-on-year.

If you just look at the growth rate of Vimeo Enterprise relative to the rest of the market, we think we're just winning more and more. Really, so far so good. It's worth noting that, you know, Vimeo Enterprise, I think has grown about 6 times in the last 2 years. We really do think it's gonna be a large business and that we have kind of the ingredients to get there.

Brian Fitzgerald (Senior Analyst)

Got it. Thank you. Appreciate it.

Operator (participant)

Our next question will come from Thomas Champion at Piper Sandler. Tom?

Thomas Champion (Director and Senior Research Analyst)

Great. Good morning, all. Anjali, maybe you could just talk a little bit about the product pipeline. I think the letter refers to some announcements to expect later in the year and there was some reference to newer partnerships as well. Maybe you could elaborate on that. For Gillian, curious if you could just at a high level, help us reconcile the full year guidance, how to think about the operating income guidance for the year and how we reconcile that with Adjusted EBITDA. And maybe talk a little bit about G&A in 1Q and the impact SBC. Any color on that would be really helpful. Thank you.

Anjali Sud (CEO)

Sure, Tom. I'll start with the product and partnership side. Why we believe that makes sense for Vimeo is because we've actually built quite a lot of capabilities into our video platform in the last few years. This year, we're really thinking about how do we actually just unify the experience, remove friction, and just make it easier for any user, whether they're coming to the site for free, or they're coming to talk to a salesperson. How do we make it way easier for them to discover and start using the product, and understand and adopt all the different things they can do on Vimeo? Most of our roadmap is really just about simplification of the existing experience.

That being said, we're not, you know, planning to launch whole new use cases or go after whole new capabilities this year, but we do think we've planted a lot of seeds that we can make even more innovative and easier for our users. The biggest challenge today for video continues to be how do you create content that is high quality, branded, and how do you do it faster, cheaper, and better? You will see us launch some capabilities in the next few quarters that we think are gonna make video even easier and more simple for users. These will include things like how do you know, take a piece of content that's recorded over, you know, a 3-hour meeting, for example.

How do you make that a much shorter teaser that takes the information, knowledge, and it makes it easier to digest? You'll see us do things like how do we enable you to edit a video the same way you would a Google Docs. Those are some of the things that you can expect. On the partnership side, our strategy and approach really haven't changed. We continue to see partners as a way to introduce more people in the Internet to the power of Vimeo and the power of video. I think it as a reminder, the two biggest areas we've partnered in to date have been social media platforms, Meta, TikTok, et cetera, where you have businesses that are looking to advertise using video on those platforms.

Then you have enterprise communications platforms, so Zoom or Webex, for example, where when you run a meeting, it can be automatically archived and then edited on Vimeo. I think you'll continue to see us look to integrate our product in those two areas. So far, we do feel like that helps introduce more people to our capabilities.

Gillian Munson (CFO)

On the guidance, couple things. It's early in the year, and we're just getting going. We're feeling good about where we are. We feel like we're on track. When I look at Q1 and the kind of results we had, I really feel like in reaffirming our revenue and EBITDA guidance, we are on track and moving the direction we wanna move. In Q2, we've guided to $100 million of revenue and near breakeven EBITDA. As you work through your quarters, just make sure you keep that seasonality in mind. On the EBITDA itself, I'd actually say we're more confident in the EBITDA range that we gave in the beginning of the year, given what we can see today in the business and the really strong discipline we are holding the company to in terms of costs and ROI.

Feeling good. It's a great early start, we're really putting one foot in front of the other. We're on track, I think 2023 so far looks like it's gonna play out just as we had thought coming into the year. In terms of operating income to non-GAAP EBITDA, in our press release, if you flip to about page 10, you'll see a really handy table that we always put in that helps you bridge between the two. The largest delta between operating income and Adjusted EBITDA for us is typically stock-based compensation. We've talked about this in the past for Vimeo.

Kind of going into the end of the year and recent quarters, you've seen us have stock-based comp in and around $20 million a quarter. We believe that number to be too high. We believe that the burn rate that we have from the shares we've given out has got too high in 2022. We are actively taking action to bring that number down in 2023. As we look at stock-based comp, we think you'll start to see that number come down over time. Excuse me. The page 10 lays out about a $16 million, give or take, stock-based comp cost in Q2. Then $45 million for the year.

I would say you sort of trail that down over time. Remember that stock-based comp for the compensation you give out oftentimes follows the vesting cycle, so it takes a little while to roll that through the waterfall. There's one other impact on G&A I wanted to highlight. We talked about this a little bit in my prepared remarks. As you may recall, last year, we had a billing rollout that was a little bit difficult for us.

It caused us to have more bad debt than we would typically hope to have. That was an impact to G&A. In Q1, we had a reversal of that. That was a nice benefit in the quarter. What I've talked about in terms of the EBITDA for Q1, about $1 million, give or take, is probably not repeatable because of some very strong performance and kinda getting that back to a more normalized basis. Hope that helps.

Operator (participant)

Our next question will come from William Kerr at TD Cowen. Bill?

Anjali Sud (CEO)

Hey, Bill.

William Kerr (Research Associate)

Great. Thank you. The enterprise business grew nicely, but self-serve continues to be a bit of a headwind. Can you just tell us how you're thinking about the potential return to growth in self-serve bookings and what the drivers of that look like? You still have a very strong cash balance on the balance sheet, and we're just wondering how you're thinking about capital allocation, both near and long term, especially as you get to free cash flow positive. Yeah, that would be super helpful.

Gillian Munson (CFO)

Super.

William Kerr (Research Associate)

Thanks.

Gillian Munson (CFO)

Let me reverse some because I wanna talk to you about some the numbers on self-serve, Anjali will give you some more color. On the capital allocation, we're always looking at it. We think it's a really important piece of running the business. For us, that means looking at M&A opportunities. We think we are an attractive buyer, we're pretty disciplined about the kind of returns we want. So far not much has met our standard in terms of what we might wanna do there. We always look, we think ultimately we are a very attractive acquirer for assets in the space. The second is buybacks. We are always looking at that.

We actually, as you know, changed our policy with regards to vesting of our employee stocks and our stock and are buying back the tax stock there. Finally, we are investing in the business. What we've talked about in the past is we certainly believe that Vimeo has double-digit EBITDA capability, but we are investing some of that upside versus where we are today to continue to grow Vimeo Enterprise and self-serve and really get the business back to the growth position we think it deserves. That's on the capital allocation. We have a great balance sheet. We think it is a pillar of strength for our company in a very uncertain economy, and we're awfully patient with that money and wanna be careful to spend it prudently. That's capital allocation.

In regards to self-serve, there's a couple things going on, and I like to sort of give people this context. On self-serve, one of the biggest impacts on our self-serve business is a macro impact, which is our relative success during COVID. We had 2 years of cohorts that were almost 3x what we would traditionally see in terms of new bookings at the company. That's 2020 and 2021. About 75% of the loss in retention you receive in any kind of subscription business like ours is in those first 2 years after you get those cohorts, and we are working through the second year of the 2021 cohort this year. We'll get that behind us as we get to the end of the year and into 2024.

That's gonna make that, just the raw math of the business, a lot easier for us. In addition, we are working a lot of execution. As you know, we have a new CMO, we have a new chief product officer, and we are doing a lot of work on where we're focusing our money in terms of getting a good return and getting the kind of traffic that's gonna convert well. Our product team is working really hard on simplification, as Anjali has talked about before. All of these are aimed at really executing against getting self-serve back to growth. We are seeing some signals that our plans are working. Sequentially, we saw nice indications that things like traffic are starting to stabilize for us. Retention has been solid for the last couple quarters. Same thing with conversion.

While it is early and, you know, we believe that that business will get back to bookings growth by the second half of the year, By the end of the year rather, the revenue will follow it. It is a one foot in front of the other. We think it's working, and we continue to believe that that business will show growth by the end of the year. That's where we are with self-serve. Anjali, I don't know if you wanna add to that or how you're thinking about that.

Anjali Sud (CEO)

Yeah. I mean, I would just add, in addition to sort of the underlying financial metrics, you know, we continue to see good evidence that businesses are using video more and that Vimeo has a great product to serve them. In particular, if you just look at usage metrics, you know, I shared on Vimeo Enterprise, you know, our active team members on Vimeo Enterprise accounts grew nearly 100% year on year. That's usage of video among team members at companies. Then if you just look at self-serve, you know, Jillian mentioned the kind of COVID impact. If you just normalize for COVID and look at our compound annual growth rates for a bunch of different metrics from 2019 to now, what you would see is nice double-digit growth.

Specifically, if you look at usage of the platform on self-serve, monthly active users and uploads, those grew double digits. If you kind of normalized for COVID, they were net growers. If you look at our ability to monetize that usage in the form of paying subscribers, and average revenue per user, those also grew double digits on a normalized basis. I think when we take a step back, we have lots of levers that we believe we can control and execute to get self-serve back to growth. We also have the sort of cohorts from COVID that are moving through. Just more broadly, businesses are using video. There will always be a percentage of them that will want to experience the product for free and buy on a self-serve basis.

We think that if you know, if you normalize for COVID, self-serve would've been a net grower, and there's no reason it shouldn't be in the future.

Operator (participant)

Our next question will come from Daniel Pfeiffer at JPMorgan. Dan?

Daniel Pfeiffer (Equity Research Analyst)

Hey, thanks. I'm gonna call for Corey Carpenter. I just have two quick ones. Can you talk about some of the key industries you're focusing on in terms of targeting business customers in the self-serve business? On the second, can you maybe talk about how you expect self-serve and enterprise ARPU to trend longer term and maybe some of the levers you have to kind of increase it over time? Thanks.

Anjali Sud (CEO)

I could say, take the industry point, which is we don't have any specific industries that we are focusing on in self-serve. We do focus on those two use cases I talked about. Businesses of any size that want to market using video, they wanna create video and put it on their website or social media, or they wanna run events, and then employee communication. Businesses that want to train and enable their employees using video or engage their employees using video. What we see, and we have looked at the long tail of our user base.

We have nearly 300 million users on the platform, registered users. What I will tell you is it is remarkably consistent on those two use cases, and it is across every industry you can imagine, every business, every company. I think that speaks to the addressable market and the tailwinds more broadly in this medium.

Gillian Munson (CFO)

In terms of ARPU, let me first talk about Vimeo Enterprise. Vimeo Enterprise has been running in and around the $20,000 range on ARPU for quite a while now. It's a combination of the new customers we bring on, and then as we bring up prices for customers over time. I think that'll continue because we are quite rapidly bringing on new customers in addition to growing customers we have. That said, when we look at our price performance versus almost any other set of tools in the market, we look at the way our platform can consolidate multiple vendors that customers have. We certainly believe ARPU is an opportunity for our company and that we're gonna continue to have an opportunity to bring people up from that range. That's Vimeo Enterprise.

On the self-serve side, we believe we also have an ARPU opportunity, particularly as that market moves more towards businesses in terms of our customer base. We feel like that's a nice opportunity for us as well. We are always in self-serve testing pricing and looking at new ways to make sure that we've got to the opt-optimal mix of price and performance for our customer base. We continue to do that actively here in 2023.

Anjali Sud (CEO)

Just one stat I wanna highlight on that last point is, you know, when we look, for example, at what self-serve users do on the platform, what we see is that if a user is not just uploading a video, but using one of our newer creation tools, for example, they are driving four and a half times higher bookings. We do have a very clear view that there are higher value customers with a higher willingness to pay, and the key is getting them to do more on the platform and to do a broader, more diverse set of things. This all speaks really nicely to why we've invested so much in multiple use cases, not just hosting, but also video creation, and why we're so focused on simplifying and unifying the platform we have today.

Daniel Pfeiffer (Equity Research Analyst)

Thanks.

Operator (participant)

Our next question comes from David Lustberg at Jefferies. David?

David Lustberg (Equity Research Senior Associate)

Hey, good morning, guys. David on for Brad. I had two. Maybe to start, I wanted to ask about the ARPU on the enterprise side. Obviously it was down year-over-year on the seat-based model, but you guys also talked about monthly active team members nearly doubling. Maybe just talk through that dynamic. Is some of that seeing, you know, some of maybe the dormant seats kinda come online? I know you guys talked about the shift on the enterprise side with SMB, but color there would be helpful. I have a follow-up. Thanks.

Gillian Munson (CFO)

Yeah. On ARPU for Vimeo Enterprise, as I think we've talked about, we continue to be in and around $20,000. We believe there is upside opportunity on that, both based on the structure of our pricing programs and the kinds of technology we are bringing to bear. You have to remember when you think about ARPU, we are bringing on new customers fairly rapidly and expanding customers we have, and that continues to be the case. In any given quarter, it can move around a little bit based on the next mix of who's in the bookings in the waterfall. The business is still small on a relative basis. We think it's gonna get quite big, but that can cause those numbers to fluctuate a little bit. That's how we're thinking about the ARPU in VE.

David Lustberg (Equity Research Senior Associate)

Wanted to ask about it. I'll ask about it. You know, I think a lot of tech investors are thinking about AI and how it can, you know, impact any of their stories both positively and negatively. You know, maybe just give us an update on how you guys are thinking about leveraging AI, if you guys are working on anything and, you know, how you envision it working with your products. Thanks.

Anjali Sud (CEO)

Sure. First, it's worth noting AI isn't new for Vimeo. We have actually been investing in AI and machine learning for several years, and we already leverage AI a bit today, to help make it easier for our users to create video content from scratch on Vimeo. Our general view is that AI is a positive for Vimeo, in 2 big ways. 1, video is still too hard, and AI can help simplify video creation and sharing. That we think is a benefit. We know the number 1 barrier to adoption is generating content. You can imagine a world where suddenly it gets way easier to generate video content, and we're the hosting and sharing platform for all of that content. We think that's very exciting.

The second is obviously like any other company, how can we use AI to be more efficient, to be more productive? You'll see us, you know, kind of invest in that as well. It's worth noting in general, we're excited about AI. We're continuing our investment there. We don't see it as a sort of major new incremental investment we need to make. It's really more about continuing to take advantage of these trends. The last thing I will just say is we also think we're uniquely positioned because of the amount of video data that we have. You know, probably after YouTube, we're the largest source of video data on the internet, and we are thinking strategically about how we can leverage that as an asset in a AI-driven future.

Operator (participant)

Our next question comes from Christopher Zhang at Truist. Chris?

Christopher Zhang (Associate Analyst)

Awesome. Thank you. This is Christopher Zhang for Youssef Squali. We're wondering, with the markets normalizing and you are able to stabilize the platform financially, how do you think about balancing needs to invest in growth versus generating margin for investors over the next several years? Thank you.

Gillian Munson (CFO)

It's a great question. When we think about the balance of profitability and growth, we really think about how can we create the most value for our investors. We think the highest value return for Vimeo is a growing profitable company. What we've talked about is that we certainly believe that Vimeo can be a double-digit EBITDA business, but we also believe it can, over time, with execution, be a double-digit revenue growth business. The combination of those two can be very valuable. We are executing patiently towards that goal. The first goal is to get our bookings to turn to growth, followed by our revenue, and then we will be able to generate much more scale in the business over the longer haul. We see a huge opportunity with Vimeo Enterprise.

We think every business should have Vimeo Enterprise, we are just getting started there with the number of customers we have. When we look at it, we want to always, at this case, in this environment, be profitable, and that is what we've achieved. We've seen a huge swing in our EBITDA in Q1 alone, we are guiding to profitability for 2023. We are investing a little bit above that, a fair amount actually, to continue to put ourselves in a position to grow. Our view is that if we don't see signs that we're gonna grow like that, we would pull back on the spend.

Right now, we have the nice ability with our business model because of our gross margin, because of the flexibility of our model to deliver solid EBITDA while we execute against what we think is a terrific growth opportunity, which should create great returns for investors.

Anjali Sud (CEO)

Just worth noting, you know, every investment is a choice. I think, having been at Vimeo a long time, we are the most disciplined I have seen about each of those choices. You will see us continue to be disciplined. We're excited about not just growth, but sustainable and increasingly efficient growth, and we're very committed to doing that.

Christopher Zhang (Associate Analyst)

Very helpful. Thank you.

Operator (participant)

With that, there are no further questions. I will hand the call back over to Anjali.

Anjali Sud (CEO)

I'll wrap by saying that we're exiting Q1 on track for our 2023 goals. We continue to believe that businesses will only adopt video more, and that Vimeo has the best video product on the market for businesses. We're focused on simplification, we're focused on efficiency, and we're focused on returning the company to growth. Thank you for your interest in Vimeo, and we look forward to updating you on our progress next quarter. Thanks.