The reasons why the Vimeo IPO flopped

Is Vimeo the first tech growth firm to see a flopped IPO? Of course not. Are they the first to seriously challenge YouTube? Yes. But to challenge Goliath when you’re David, you need to make sure you have the right weapons and strategy to do so.

Key takeaways:

  • Vimeo is a cloud leveraging video hosting platform with a special focus on high definition and quality content;
  • The platform hosts 200 million users and 60% of Fortune 500 companies have an active account with them;
  • Vimeo’s IPO on May 25th flopped 15%, raising some eyebrows around the firm’s future, a future CEO Anjali Sud firmly defended on the prospect of increased M&A activity, product offering and engineering talent;
  • The fact remains that most tech IPOs flop—the doubt on this one though is that video hosting is not as novel as say a Facebook was when it flopped.
  • In the end, Vimeo’s financials are decent, and while not impressive, deserve the right measure of optimism in what is a growing business.

 

 

Think of Vimeo as a SaaS business

Founded in 2004 by Zach Klein and Jake Lodwick, Vimeo is an American video hosting, sharing and services platform. The main mission of the company is to provide users with high definition, user-generated videos across various devices. Nowadays, it has become one of the big logos, so to speak, and is a social media application that businesses leverage for marketing all around the globe.

 

According to their website, the company has more than 200 million users as well as 1.5 million paid subscribers spread over 190 countries. In total, the company can boast about its 100 billion total video views, with 350,000 new pieces of content added each day. No doubt about it, Vimeo is known in the business world. 

 

Figure showing Vimeo subscriber growth worldwide since 2015

 

Interestingly, Vimeo has become more than just a video hosting website, and as explained next, CEO Anjali Sud has driven the company forward via a software-as-a-service business model. This means the company has grown out of its video streaming phase and become a cloud leveraging company. But how does all this differ from YouTube anyway ?

 

Wait, what differentiates Vimeo and YouTube?

Although its broad description sounds exactly like YouTube, there are a few key differences between the two services. 

 

First, YouTube’s user base is much larger with over 1 billion users. But quantity is no synonym of quality: YouTube’s massive community can be toxic, while Vimeo’s generally shows more support and constructive feedback as well as high end content.

 

Nevertheless, Vimeo is not free. Its comes with different packages depending on the storage you need. YouTube is entirely free, except if you want to get rid of ads for a mere $10 a month. Vimeo forces you to pay, but at least, you do not have to suffer through lawnmower ads.

 

Another advantage that Vimeo has is the possibility to change a video without losing its stats. No more worries about this small editing detail you forgot. YouTube remains very strict on the matter and erases all stats when changing a video. On the copyright side, YouTube will automatically detect and disable any elements going against copyright rules, while Vimeo will not.

 

Although the apps seem similar, these few differences will naturally change their client base, YouTube being maybe more appropriate for the larger public while Vimeo will deliver a superior service to users that produce very high-quality content with a close attention to detail.

What happened with Vimeo’s IPO?

On May 25th, Vimeo’s opening debut on public markets fell 15% when many expected the inverse. We use the word flop instead of fail in instances where the result of an outcome does not match the initial hope, but in fact most IPOs actually flop at the start! Just take Facebook as an example. Facebook shares traded below the $38 IPO price for 14 months, and went as low as $17.55 before resurging into the giant it is now. 


Vimeo is not as novel as Facebook was, sure, but it does show promise in the video streaming business. The market for streamers, and marketing is massive, and the cloud business is profitable! However, investors just might not understand how Vimeo truly differentiates from others, and this could be a nice wake up call for the management at Vimeo--just offering a silver lining here... 

 

Do Vimeo economics justify a flopped IPO?

Yes, and no. We enumerate some of highlights below, figures that show a healthy business, and enterprising talent base. On the other hand, the numbers are not that impressive, and much too somber to challenge the likes of YouTube. Furthermore, Vimeo will see a hurdle coming from the DeFi cloud streaming product offering, offerings that want to make a cloud service on a decentralized ledger (i.e. using blockchain).

 

So, what has Vimeo got going on?


Vimeo’s 15% share price flop did not seem to bother Vimeo CEO Anjali Sud, who said in a Yahoo Finance interview that since they had already raised $300M in January, that this event would not hinder the company’s cash objectives in the least. This is hard to take seriously however, considering IPOs are in large part meant as a means to raise additional powder. The surprise primarily stems from the fact that many figures stand out on the S-1 filing, figure we study next:

 

  • Vimeo recently posted a 57% sales growth figure for the first quarter. Sales grew because companies continued to invest in professional video tools throughout the pandemic. In fact, the first quarter showed operating profits coming in at $1.8 million, the third such quarter in the green for the company. One contra argument however is that Vimeo insinuated that this trend would not be sustainable as costs will ramp up from spending on key investments.

 

  • Vimeo has 1.5 million paying subscribers generating an average $223 per head annually. They generate revenue via a membership scheme of which 80% of users pay for every year. This gives Vimeo a decent revenue predictability going into the next stage of its growth and in fact, Vimeo indicates a growing trend in subscriber conversion rates from free to paying customers. 

 

  • The net revenue retention from enterprise customers was above 110% in Q4 which indicates that such customers paid Vimeo more overall in the period compared to the previous year. In terms of popularity, Vimeo is well known despite competition from YouTube, something shown in the fact that 60% of Fortune 500 companies have an active Vimeo account for marketing. In other words, Vimeo has a foothold in the game against YouTube because it offers a user base and has become one of the main video platforms we all know. 
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