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Why Vimeo Stock Dropped 27% on Thursday

By Brett Schafer – Nov 4, 2021 at 12:45PM

Key Points

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The software company reported good third-quarter results but gave out disappointing guidance.

What happened

Shares of Vimeo (VMEO -1.35%) dropped 27% on Thursday after the company released its third-quarter results. Earnings for the video software company were in line with analyst expectations, but guidance for the fourth quarter and 2022 were disappointing, which caused the stock to drop today. As of this writing, shares of Vimeo are down 26.7%.

So what

After the market closed on Nov. 3, Vimeo released its results for the three months ending in September. Revenue grew 33% year over year to $100 million, and the company had diluted earnings per share (EPS) of negative $0.07. Both numbers were right around analyst expectations, so the results were likely not why the stock is down so much today.

a person filming themselves with a camera.

Image source: Getty Images.

The reason for the share drop could come from management's commentary on the conference call regarding Vimeo's forward guidance. For Q4, Vimeo is expecting revenue to grow 25% year over year, and in 2022 revenue growth is expected to fall short of 30%. Analysts were reportedly expecting 28% growth in Q4 and 32% growth in 2022, so this guidance from management was way below their expectations. This is why Vimeo stock is down over 25% today.

Why are analysts so focused on the 30% number? Because at its investor day in March before the spinoff from IAC/InterActiveCorp (IAC 0.30%), Vimeo said it expects revenue to grow at a 30% rate for the next five years. If its 2022 guidance comes into fruition, it will already be disappointing on those expectations. 

Now what

Management said its 2022 revenue growth will be down because of the tough comparable numbers it will be facing from 2021, and that over the long run it expects to get back to its 30%-plus revenue growth target. With a market cap of $4.2 billion and the stock now down over 50% since its spinoff from IAC, if you believe Vimeo can get back to its long-term targets, now could be a great time to scoop up shares at a discount. 

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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