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Why Vimeo Stock Tanked Today

By Brett Schafer – Aug 6, 2021 at 2:05PM

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The video software company's earnings came in below expectations.

What happened

Shares of Vimeo (VMEO 2.57%) were tumbling on Friday after the company reported disappointing second-quarter earnings. The recent spin-off from IAC/InterActivCorp was down as much as 17.1% on the news. As of 1:01 p.m. EDT, the stock was down 14.6%.

So what

Vimeo reported a second-quarter earnings per share loss of $0.13, which was worse than the $0.05 loss analysts were expecting. The company is also seeing a worsening trend in monthly subscriber and revenue growth. Vimeo's revenue grew 46% year over year in April but has slowed every month since, hitting 35% year-over-year growth in July. Subscriber growth followed the same trend, going from 21% year-over-year growth in April down to 16% year-over-year growth in July. 

A camera set-up ready to record someone.

Image source: Getty Images.

On a more positive note, total revenue grew 43% year over year in Q2 to $96 million, while gross margin expanded from 66% to 73% during the period. Vimeo also generated $18 million in free cash flow in the quarter, meaning that while the company may show EPS losses according to generally accepted accounting principles (GAAP), the underlying business is still generating cash for shareholders. Enterprise revenue grew 80% in the quarter, which shows the strong traction Vimeo is getting with Fortune 500 clients like eBay and Williams-Sonoma

Now what

While Vimeo's stock is now trading at a discount from earlier in the week, the company still has a market cap north of $6 billion. With $397 million in projected full-year 2021 revenue, that gives shares a forward price-to-sales ratio of 15.1 after this drop. That's not crazy expensive, but it's not cheap, either.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Williams-Sonoma and eBay and recommends the following options: short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

Stocks Mentioned

Vimeo, Inc. Stock Quote
Vimeo, Inc.
$4.39 (2.57%) $0.11
eBay Stock Quote
$45.16 (-0.62%) $0.28
Williams-Sonoma Stock Quote
$116.72 (-0.15%) $0.18
IAC/InterActiveCorp. Stock Quote
$52.47 (1.12%) $0.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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