A spin-off is when a business unit of an existing public company is separated and becomes its own public company. For example, PayPal Holdings used to be a part of eBay until it was spun off in 2015. Spin-offs can be an interesting place to look for investment ideas, because unlike IPOs, they don't tend to attract a lot of attention or excitement.

Last year, IAC/InterActiveCorp (IAC 2.26%) spun off its online dating app, Match Group, which went on to perform well in its first year as a public company. Last month, IAC gave investors another spin-off to chew on with video publishing platform Vimeo (VMEO -0.83%).

Given the success of Match Group, should investors pay attention to Vimeo?

What exactly is Vimeo?

Many people are familiar with Vimeo as a sort of little brother to Alphabet's YouTube. This was true five years ago, but Vimeo pivoted its business model in 2017 from serving as a viewing platform to operating as a software company helping businesses and creators edit and publish high-quality, ad-free videos.

Vimeo still operates its viewing platform, which counts over 200 million users, but it also allows creators to upload, edit, and publish videos that push to other websites including TikTok, YouTube, and Twitter. Vimeo's value proposition is two-fold. First, it makes the process of editing and publishing videos online easy by providing tools that anyone can use. For example, Vimeo recently acquired a company that harnesses artificial intelligence to help users create quality product videos in just a few clicks. Second, Vimeo provides its tools and platform at a very low cost compared to other available options. The combination of cheap and easy-to-use is very powerful.

Vimeo also serves larger enterprises with features including live streaming, video on demand subscription management, viewer analytics, and developer APIs that allow endless customization. During the COVID-19 pandemic, Vimeo added many enterprise customers to enable "town halls" for communications between employees within organizations.

Vimeo has a compelling suite of products and has benefited from the increased need for powerful video solutions in recent years. The company appears to be in the right space at the right time.

A camera captures a  person recording a make-up tutorial.

Image source: Getty Images

Why did IAC spin off Vimeo?

If Vimeo is so promising, then why did IAC decide to spin the company off? Well, buying businesses, building them up, and spinning them off is a game IAC tends to play. IAC was founded by legendary media investor Barry Diller, and has a storied track record of running this playbook. IAC has been the force behind many well-known media companies including Expedia, Match Group, and Angi, formerly Angie's list, to name a few examples.

This is exactly what IAC has done with Vimeo. IAC acquired Vimeo in 2006 as part of a package deal with a few other internet properties. In 2017, Anjali Sud was promoted as CEO to take the company in a new direction. Sud led the company on its journey from serving as a media viewing platform to selling its software and publishing solutions to creators and enterprises over the past four years.

Under IAC's stewardship, Vimeo has bolstered its offering by acquiring several companies including Livestream (for its live stream capabilities), VHX (for its video distribution platforms), and Magistro (for its video editing capabilities).

The combination of putting new management in place, funding acquisitions, and providing the company the room to grow has resulted in a spin-off worth over $8 billion. This has been a home run investment for IAC and has initiated a new chapter for Vimeo to pursue its own destiny as an independent company.

A long-term growth opportunity in video

The video medium has become a more prominent staple for consuming entertainment, advertising, and communicating with friends and co-workers. And this trend has only strengthened in light of the COVID-19 pandemic.

Vimeo has carved out an interesting and valuable niche in this new video communication ecosystem. The market for its services continues to grow at a rapid rate and the company is poised to capture that opportunity. This makes Vimeo an interesting technology stock to watch for the long run.