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Why Vimeo Stock Plunged This Week

By Daniel Sparks – Nov 5, 2021 at 8:07PM

Key Points

  • Vimeo's third-quarter revenue increased 33% year over year.
  • The tech company saw strong growth in subscribers.
  • A lowered view for fourth-quarter revenue may have triggered the stock's sell-off.

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Management's guided for slower growth in Q4. But the video software specialist is up against a tough comp.

What happened

Shares of video software specialist Vimeo (VMEO 3.83%) fell sharply this week. The stock declined as much as 32.3%, according to S&P Global Market Intelligence. As of the end of the week, shares were down a total of 30.8%.

The growth stock's decline was primarily driven by the third-quarter update and some analysts' follow-up moves to downgrade their ratings for the stock.

A chart showing a stock price declining sharply.

Image source: Getty Images.

So what

Vimeo said its third-quarter revenue rose 33% year over year to $100.1 million. Its loss per share was $0.07. These results beat analysts' average forecasts for the two metrics. But Vimeo's revenue was only slightly ahead of the $100.0 million consensus estimate by analysts. The company's loss per share was narrower than the $0.10 loss analysts anticipated.

Total subscribers increased 14% year over year.

Management lowered its view for fourth-quarter revenue, likely spooking some investors. Vimeo guided for revenue growth to slow in Q4, coming in at or slightly above 25%. The company cited a tough year-ago comparison and "softness" in its over-the-top (OTT) products, particularly in its fitness and faith categories. "These 2 verticals are materially elevated demand and urgency during the pandemic and the reopenings have muted new business demand more than we expected, especially for smaller customers," explained Vimeo chief financial officer Narayan Menon in the company's third-quarter earnings call. 

Several analysts downgraded their 12-month price targets for the stock after the earnings report.

Now what

Investors should keep in mind that Vimeo is going up against some extremely tough year-ago comparisons. In its fourth quarter of 2020, for instance, revenue grew a staggering 54%. As management notes, this anticipated 25%-plus growth in Q4 would actually mark an acceleration (79% growth versus 77% growth in Q3) on a two-year stack basis.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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