Vimeo - Q4 2022

Transcript

Operator (participant)

Good morning, and thank you for joining Vimeo's fourth quarter earnings live Q&A. We're excited to be here with you on video. 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 similar such statements. These forward-looking views are subject to risks and uncertainties. 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 fourth quarter Q&A. Last night, we published an interactive shareholder video that walks through our results and outlook. Once again, we used Vimeo's product to make our update fully interactive. We know it's earnings season and your time is precious, so you can click and navigate through the content instead of watching it linearly or just reading the transcript. We of course hope that this helps to demonstrate how video can make important communications more engaging and easier to consume. I'd like to highlight three things before we take your questions. First, we have great momentum in Vimeo Enterprise. Last quarter, bookings were up 59% year-over-year. Net revenue retention was again above 100%, and customer usage is looking very strong. We see Vimeo Enterprise as a big growth driver still in its early days.

In under four years, we've built a business with a $65 million run rate in bookings that's growing faster than the rest of the market. We'll lean into this momentum in 2023 with our investments. Second, we believe that by simplifying our product and focusing on the fundamentals, we can get self-serve back to growth on a more normalized trajectory than the past few years. Our line of sight here is getting clearer as we get past the COVID cohorts, we expect far more visibility over the next few quarters. Third, we're getting more efficient. This was our second straight quarter of positive adjusted EBITDA and free cash flow, we enter 2023 with the flexibility to invest in growth while continuing to improve margins.

This is a choice that we will keep assessing as we move through the year based on our results, with the commitment to profitability in any growth scenario. With that, let's jump into questions.

Operator (participant)

Thanks, Anjali. At this point, we're ready to take our first question. I'd now ask any of our covering analysts to raise your hand on Zoom. Please remember to unmute your microphones and come on camera when asking your question. Our first question comes from Thomas Champion at Piper Sandler.

Anjali Sud (CEO)

Hey, Tom.

Gillian Munson (Financial Advisor to the Board and CFO)

Hi, Tom.

Thomas Champion (Senior Research Analyst)

Hey, good morning. Hopefully you can hear me. Two for me, please. Anjali, maybe on the self-serve side, given the outsized customer growth of 2020 and 2021, help us understand the retention characteristics of these cohorts and kind of where we are through that process of anniversarying. What does the path forward look like to get those cohorts back to stability and return the self-serve segment to revenue growth? Gillian, maybe one for you. We like the EBITDA guide for the full year. Curious if you could talk about the range of macroeconomic scenarios you're envisioning. You know, balancing that, what are the key investments Vimeo needs to make in order to drive product growth? Thank you.

Anjali Sud (CEO)

Sure. Look, on self-serve, you know, we very much believe that there are good reasons to get that business back to growth. We were growing well pre-pandemic, as you said, Tom, we have these large cohorts that are, you know, 3x larger than pre-pandemic that came in over the last few years. They are retaining somewhat worse than what we've seen in the past. That's largely because of the nature of those cohorts, but also because we've diversified our use cases. You know, in the last few years, we have gone from really being a pure play hosting-only platform to offering our customers many different things.

Why we have a lot of confidence in our ability to grow is because when we look at the fundamentals, what we're seeing is the tailwinds for video are there. We have a great product that solves our customers' needs, particularly in the two use cases of marketing and communications. We think that we have clear levers between making our UX more simple, improving our website and our pricing, and getting better at marketing to these customers that have these use cases. We think we have the ingredients to really return self-serve back to growth.

That coupled with coming out of the sort of just the time that we've as we come out of the pandemic, sort of gives us a sense that we have both the sort of natural subscription economics are moving in our favor and we can execute with the right growth levers. That's kinda what I'd say there, and I'm sure, you know, Gillian can break that down more.

Gillian Munson (Financial Advisor to the Board and CFO)

Yeah. Tom, I think the thing I like to remember about self-serve is it is a classic subscription business. First year and second year are the biggest deltas in retention, almost no matter what the product. Then you get out to three and beyond, and that starts to really be much more negligible in terms of the delta. When you look at what we had in 2020 and 2021 as a function of largely the pandemic, but also some of the trial work we did.

You've got two years of pretty large cohorts on new. By the time we get to the end of 2023 and into 2024, those folks will all be in three years plus and have a much lower swing factor on the business. When we look at new itself, underneath it all, we see new as about a mid-teens grower. When you put it all together, you get the company back to a place where it's more traditional, where new is running in the 20 some odd percent of your bookings and the new renewal is the rest. I think that in any event, these cohorts that we had in 2020 and 2021, were gonna have an outsized impact on the business, and we're seeing that. They were fairly unprecedented.

We're gonna be through the tail end of where the folks that are staying with us are gonna stay with us pretty sustainably over the longer haul. Underneath that, and Anjali mentioned this, but I think it's really important to note, we see metrics in the business that point to that sort of mid-teens organic growth, paid MAUs, uploads, and as Anjali mentioned, the sources of those uploads is spreading out amongst our products. Uploads are up in the mid-teens, and now they're from almost 0%-40% from all the new different products we've added to the mix. We feel good that underneath it all there is a growth business there, and that the last couple of years have been very clouded by those two cohorts.

That's the self-serve business, and that's why we fundamentally believe it's a growth business, and that when we kinda get through there, you're gonna really start to see it in the numbers. You also asked about EBITDA. We are committed to being a profitable business. We think it's really important. We've said many, many times the stability of our business and its balance sheet is important to us, and we really think as we work through this period we are in, having a stable balance sheet and putting more cash on the books is an important thing to do. We have been in a challenged top-line environment for a while, there's nothing super new in terms of macro sentiment in there, given that we're already sort of dealing with those transitions. Your last question was key investments to drive profitability.

We, as part of our 2023 planning, which really led us to the guidance we gave, decided to make some key choices, and that in the interest of being a profitable growth business, which we think over the long haul is really our best way to create value, we are really concertedly investing in Vimeo Enterprise and getting self-serve back to growth and have made choices to not invest in other less strategic areas.

Thomas Champion (Senior Research Analyst)

Thank you.

Operator (participant)

Our next question comes from Brian Fitzgerald at Wells Fargo.

Brian Fitzgerald (Managing Director and Senior Equity Research Analyst)

Thanks, guys. A couple I wanted to drill down on, maybe even follow-ups. Wanna know if you could talk to on self-serve, any trends you're seeing at the top of the funnel, a bit more about the opportunity around free to paid conversion, where you are today, maybe in relative terms versus best-in-class players, you referenced in the letter. Any structural inhibitors to free to paid conversion versus other players in the market. And then maybe if you could talk about the playbook, how quickly you think you can narrow that gap, Sir.

Anjali Sud (CEO)

Brian, I think your last question, you broke up a little there. Do you mind repeating it for us?

Brian Fitzgerald (Managing Director and Senior Equity Research Analyst)

Are there any structural inhibitors in free to paid conversion versus other players in the market? What's your playbook, if there are, to closing that gap on, free to paid conversion?

Anjali Sud (CEO)

Got it. Yeah. In terms of top of funnel trends, I think we shared that in 2022, we did get hit with a pretty meaningful decline at top of funnel demand, you know, around 30%, which obviously impacted our results last year and then flow through to revenue in 2023. We are seeing, you know, very early signs that that may be getting better, still declining, but at a, at a lower rate. Regardless, our strategy and plan for execution in 2023 doesn't require us to see a material change in top of funnel. The reason is that there is enough demand where we believe that we can do a better job of bringing in qualified users. These are businesses who are looking to use video either for marketing or internal communications.

That the sort of addressable market of those folks and how to reach them is large enough that we can funnel less marketing dollars in a more efficient way to bringing and attracting those customers. Then we think we have the ability to improve conversion, both free to paid conversion, so better converting our free users who are giving us a signal that they should be getting value from our tools, as well as even just other traffic hitting the site, how can we better convert them? The ways that we'll look to do that is our website, and optimizing our website, and then our pricing and our packaging, which as you know, we have been working through.

We've moved to a per-seat pricing model, which we think is the right one for Vimeo. We see a lot of opportunity right now to test and optimize that model to drive improved conversion. To the question of sort of best in class, I think generally you can look at what other SaaS companies have done. There's no structural reason why we can't do those things. Just even forgetting that and putting that aside, if you go to the Vimeo website, we have a very broad set of capabilities.

That serve a very broad set of users. One of the things we think is entirely in our control and is in line with our strategy of simplification is we think our product can do a better job of exposing what you can do on Vimeo, and we think we can provide a more targeted, focused experience for the right customers. I think what you're really seeing is sort of that as part of a mix shift in Vimeo. It's sort of a natural, sort of focusing on who's our highest value customer. Let's make sure our pricing, our website, our product experience really speaks to those customers. It's pretty basic blocking and tackling, but we have a new chief product officer and a new chief marketing officer, both of whom have done this many times.

They are now six months in, and they're the ones really leading this initiative, and I think they have a lot of confidence that just by blocking and tackling on the fundamentals, we should be able to move the needle.

Brian Fitzgerald (Managing Director and Senior Equity Research Analyst)

Thank you. Appreciate it.

Anjali Sud (CEO)

Thanks, Brian.

Operator (participant)

Thanks, Brian. Our next question will come from Brent Thill at Jefferies.

Brent Thill (Tech Sector Leader of Software and Internet Research)

Good morning. Just on the enterprise opportunity, I know you mentioned it's, around 10% of revenue, 15% of bookings. Maybe just paint a picture of the long-term aspiration, Anjali, where you think the business can be and maybe just walk through kind of what are the remaining roadblocks that you need to get around for that business to really kind of create the cadence and the predictability, that you'd like to see?

Anjali Sud (CEO)

I believe that the opportunity is pretty massive for Vimeo Enterprise. Every company, every team, every organization, every workforce in the world should be using video more than they are today. I think the tailwinds are clear, certainly in our numbers. Just more broadly, if you look at what's happening around us, we have a new generation coming and entering the workforce. They are digitally native. They're spending their personal lives on TikTok. Attention spans are getting shorter. I think if you just take a step back, do we envision a future where we're gonna train employees using documentation and manuals, or are they gonna use interactive video? Are marketing teams going to have to figure out how to create really compelling video content at scale every day? You know, we really see that opportunity.

You know, our goal is every company, every workforce is using Vimeo to, you know, communicate better at work using the power of video. Obviously we have good momentum now. We're not there yet. I think the good news is that from a product perspective, we've put a lot of investment in the last few years in expanding our product suite. We do think we have a pretty strong product suite that is winning relative to others in the market today. It's one of the broadest suites. It has a good mix of helping companies do what they need to do right now, while also being innovative, and thinking about the future, and we're seeing that resonate with some of the largest companies in the world.

When I think about what we need to do now, it really is getting good at marketing and selling this product, increasing awareness, so we're in the consideration set. To this day, we still often are not in RFPs from some of the largest companies because they don't know and think of Vimeo as an enterprise solution. We absolutely need to get efficient and better at every sale. You know, generating pipeline, converting pipeline, all of your classic go-to-market, you know, enterprise SaaS muscles. I think we've made really good progress there, but there's still work to do. Just the very last piece I'd say is, you know, we did roll out a per-seat pricing model last year in Vimeo Enterprise that is resonating.

One of the things it does really well is it aligns our customer success with how we charge. Ultimately, what we have to do is get really, really good at making our customers successful, helping them realize the ROI from video, helping them track and measure that ROI, and ultimately then, you know, monetizing that value. You know, those again, sound like fundamentals, but I think that's where we are. We're executing on the fundamentals. We have all the ingredients for success, and I think Vimeo Enterprise can be a very large, exciting business. Yeah. Can I just add a couple quick details? We mentioned in the call, or the video rather, that we had our best win rate in Q4 in this business.

As you know, we revamped our sales force in 2022 and really started to see that momentum build in terms of productivity, win rate, et cetera, as we ended the year. The second piece, and one of our favorite parts about our business model, is that self-serve continues to be the hunting ground for Vimeo Enterprise in a meaningful way. For the year and for the quarter, it was more than half of the leads that came in for that business came through our self-serve business. We are continue to believe that self-serve is a very important piece of the puzzle of how you build this overall growth story.

Operator (participant)

Thank you. Our next question will come from Justin Patterson at KeyBanc.

Justin Patterson (Managing Director and Senior Research Analyst)

Great. Thank you very much.

Anjali Sud (CEO)

Justin.

Justin Patterson (Managing Director and Senior Research Analyst)

Anjali, I'd like to go back to just, kind of your theme for the year, innovation through simplicity. I know a lot of us have often thought of Vimeo as being much simpler, easier to use than a lot of competitors. Kind of talk through just what you see as the opportunity to simplify the Vimeo platform today? Are there some discoverability issues with the product? Are people just not realizing the full value of the platform? Gillian, perhaps you could tack on to that how you think of that influencing conversion rate over time. Thank you.

Anjali Sud (CEO)

I think Vimeo has always been and what we do exceptionally well is we make vis-video easy and intuitive, and we make really complex types of video far more accessible. That's always been our strength, and it continues to be our strength. Where I see an opportunity is in the last few years, we have dramatically expanded what you can do on Vimeo. For the first 10+ years of our history, once you had a video, you could upload and host that video and embed it using Vimeo. We are still best in class at that, and we'll continue to advance to make sure we stay that way. Now you can live stream an event on Vimeo. You can create a video, you can record a message.

After you've created that video, the things that you wanna be able to do have changed and have evolved. We have expanded our product pretty dramatically. I think the reality is that right now it is too hard to discover the full breadth of what you can do on Vimeo today. The way to solve that is much easier once you've already built the capabilities. We have all of the products in our suite. We need our UX and the way you get into the product to be frictionless and to be sort of viral in its ability to help you discover what you can do. Some of that is just truly removing steps in the process, like true simplification.

Some of it is actually just being smarter in our data using AI to be able to say, "Okay, we know what kind of a user you are. What's the next best action? What's the next thing we're gonna surface?" Those are the types of opportunities we are laser focused on this year, we think there's a lot of, very sort of near term, you know, improvements that we can drive and launch whole net new capabilities. We're really saying like, we've built a lot of power under the hood and it's time to expose that power in a more simple way. I will just say, you know, that doesn't mean we won't also look to innovate in certain areas, but innovation through simplicity, the reality is we know every customer we talk to still finds video too hard.

Every single one. You can be in a marketing department of the largest company in world with the largest budget. You can be someone who has been in the video business and creating video for 20 years, you will still say it's way too hard. We think that this sort of simplicity really is the way to open up video for the world.

Gillian Munson (Financial Advisor to the Board and CFO)

From a financial perspective, our view is that we need to be building a profitable growth business, right? We need to have efficiency in our marketing dollars. Conversion is a huge piece of that, but it's also a huge piece of adoption. I like to joke that IR is gonna become a profit center at Vimeo, and we're already on our way, I can tell you. We have customers that have come in because of our video. We get a little aid in that from time to time. There's, you know, we have some special on every CFO to be able to do a video of their earnings from their home if they need to or want to. I think that's the kind of thing that feeds into conversion.

To build a profitable growth business, we want that conversion to continue to grow. Just as a reminder, our conversion, we've talked about this in the past, it is down from the Pandemic, but up meaningfully from pre-Pandemic periods. That's all us to the point where we can drive the kind of EBITDA margins we think the company deserves.

Justin Patterson (Managing Director and Senior Research Analyst)

Thank you.

Operator (participant)

Thanks, Justin. Our next question will come from William Kerr at Cowen.

William Kerr (Equity Research Analyst)

Great. Thanks. Good morning. I had two quick ones. Stock-based comp stepped down nicely in 4Q. Are there any one time call outs there? Could you just talk about your philosophy around stock-based compensation and how investors should be thinking about that going forward? I have one other one.

Anjali Sud (CEO)

Sure. Thanks, Bill. Stock-based comp has been running in and around $20 million a quarter. In Q4 it was meaningfully lower. That's the result of some exiting executives, where we've had to true up the stock-based comp for those grants. There's a little bit, a lot of Q4, and I think we outlined it in the prepared remarks. That is one time in nature for that, a true up, if you will. That said, I think there's a more important point on stock-based comp because stock-based comp ultimately reflects burn rate and dilution to our shareholders. Vimeo in 2022 had a bit of an unprecedented set of circumstances. The stock came down a lot. We were continuing to hire. We brought on a whole new management team.

As we look at 2023 and beyond, we are very committed to limiting dilution to shareholders, and that's gonna have a resulting impact on stock-based comp. $20 million has been in and around where we are. I think that's sort of peak level and that will start to come down over time at the company. One other note on dilution, just generally, and we mentioned this in the video, but we have gone to net settle on when our employees shares vest for tax purposes, which is in a way its own a buyback of sorts in the company. Again, very, very focused on dilution. It'll show through in stock-based comp over time.

William Kerr (Equity Research Analyst)

Okay. Great. Thanks. One more. Anjali, there's been a lot of talk about AI and generative AI lately. I was just hoping you could tell us a little bit about how, you know, Vimeo's using AI, how you think it might potentially impact the business over the long term.

Anjali Sud (CEO)

Sure. Well, you know, I think like everyone, there's a ton of exciting opportunity in AI. AI isn't a new thing for Vimeo. We've been very intentionally investing in AI over the last few years. I think we've built one of the strongest video AI teams, certainly in our industry over the last few years. We do use AI in very tangible ways today. We use AI to optimize video delivery so that it can be scalable, efficient, and high quality. We use AI to help customers create content. You can use our mobile app and, you know, provide us with some images or video footage, and we will use AI to automatically create a video for you that you can then edit.

We do things now increasingly to help automatically sort of optimize content that comes through our system. An example would be if you are, you know, you had a three-hour meeting and it's now automatically being recorded and archived on Vimeo, we will now use AI for our enterprise customers, for example, to automatically suggest ways to chapter that content based on the information. Those are some of the ways today that we use AI, and it's really all designed to like, how can we help you create content faster that's better quality? How can we help you get more from the information that's contained within a video? Obviously, how can we help Vimeo operate in a better way?

On the topic of generative AI, certainly that's an area we're looking at, and, you know, we believe we're well-positioned to, you know, play a role in and leverage for the benefit of our customers. You know, one of the things I think is really interesting is we do have one of the largest data sets in the world on video. Our embeddable player is out on the internet. I think after YouTube, there is no other player that has as much video content. We think that we have some interesting assets and opportunities to be able to play a really valuable role in the sort of e-ecosystem around generative AI.

Certainly, it's early in video, but it's not that early, and we're taking a pretty, you know, proactive approach as we think about that.

William Kerr (Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thanks, William. Just a reminder, if any covering analysts have questions, please raise your hand. Next question will come from Daniel Pfeiffer at JPMorgan.

Daniel Pfeiffer (Executive Director and Equity Research Analyst)

Hey, thanks. I'm on the call for Corey Carpenter. I just have two quick ones. On trends more broadly in international markets, are you seeing any differences in the growth rates versus domestically? On the second question, you talked about one of the big use cases for Vimeo Enterprise being for marketing departments. I was just wondering if you're seeing any slowdown there on customer acquisition or higher churn among those customers given the slowdown in marketing spend across the industry. Thanks.

Anjali Sud (CEO)

Thanks, Danny. Just I'll hit the international growth first. Our US business grew faster than international markets, but not by a meaningful amount in the quarter. That's where that sits. We talked a little bit about currency's impact on or FX's impact on the financials. They would've been slightly better without that FX headwind. Then, you know, just to add on the global side, the need for video is global. We continue to see demand across countries and regions. Certainly for Vimeo Enterprise, we see an opportunity to expand internationally. You know, we had planted a flag in EMEA and APAC, and we're seeing really exciting growth there, and we think we're just getting started as it relates to international expansion of our sales force.

On the question about marketing departments, you know, it's interesting. We haven't seen any slowdown in demand from marketing departments given the need for folks to get more efficient. The hypothesis that we would have based on what we see is there's actually a greater demand for every marketing dollar to have an ROI. If video has higher clicks, higher engagement, is a better tool to acquire your customers, then it actually the need becomes more valuable. Where it's tricky is if your value proposition and your price point isn't compelling, and we think we have the best value for money in the industry, right? We've, you know, we've moved to a per-seat pricing model. We really have kind of taken the approach of let's make it easy to start using video.

You can start as a marketer on Vimeo for free. You can pay $200 and start to realize the benefit of our tools. Over time, based on your usage and what you're doing, we can turn that into a really meaningful relationship with you. I think that approach that we've taken is actually quite aligned with sort of macro desire to be more efficient. One last thing I wanna add is the other thing that we've certainly seen more momentum in in the last couple months has been to save money. We are seeing that sort of sale resonate with companies more and more, and we're sort of developing a tighter pitch around that and offering around that.

I think, you know, for both of those reasons, we are actually well-positioned to be sort of a net benefit, that many companies can embrace right now to be more efficient during this time.

Daniel Pfeiffer (Executive Director and Equity Research Analyst)

Thanks.

Operator (participant)

With that, it looks like there are no further questions. I would like to hand the call back to Anjali.

Anjali Sud (CEO)

Great. I'll wrap by saying something that I think is important for you all to know. The Vimeo team is pumped. Despite challenges and tough choices of late, we kicked off the year genuinely energized, and for two reasons. The tailwinds for video are strong, and we think we've got the best product for businesses to use video, and because our strategy is to simplify. Simplify our product to make it easier for our customers and simplify our business to make it easier for ourselves. Simplification is, I think, a powerful forcing function for focus and efficiency, and we feel like we have the right tools to execute and delight our customers this year. Thank you for your time, and we'll wrap by playing some quick footage from our company kickoff last month.

Speaker 9

We can bring humanity to distributed work. We can elevate human expression. We can do that because of the power of video, because it's a richer, more emotional, and more human medium.

What I really, really believe is that this is still day one. We've talked about it a little bit, but just talk to your friends, talk to business owners. Ask them how many of them actually use video effectively at work, and a very small number of them actually do.

We're gonna break the silos, and we're gonna connect it all together with one familiar, delightful product that gets you to value, to delightful moments very quickly.

Our vision for this core flow and these self-service customers is really a one Vimeo product that's a unified, simplified experience that lets customers discover what Vimeo offers, jump in to get work done, and then do that work successfully.

Vimeo Enterprise is a winning solution, and the proof is not just in our growth rate of over 50%. We have a product that in three years has a higher NPS score than Google or Apple.

I hope that everyone is as inspired and pumped up about our future as I am, right? Wearing this suit here today. Okay? If you are, it will take the collective will of this team with that singular vision and focus all rowing in the same direction to accomplish our goals.

What I took away from this year or this event was seeing the alignment between product marketing and the go-to-market plans that PMM and Josh and others have put together to set ourselves up for these very large, very hefty growth goals.

We now serve a user base of almost 300 million users in nearly every country in the world.

If you think about it, Vimeo player is everywhere. Everyone talked about the fact that we have over 1 billion impressions. I truly believe that AI is the new UI. The UI will work like magic. Essentially, it'll appear when you need it, and then it'll go away when you don't need it.

Brand is just how our customers identify us. It helps them understand who we are, what we do, and most importantly, why they should care. Really focusing on a consistent approach is gonna be our major priority for marketing.

It's a doable goal, and it's gonna be something that I think is going to absolutely set us up for scaled growth over time, so I'm excited for all of that.

I believe in this a million percent. This year is gonna be amazing for Vimeo. Let's go get it.

By unlocking video for work, we can build a more connected and productive world. That's why I'm here. That's why I would spend the rest of my career making video accessible.