2021 has not been kind to high-growth technology stocks. After a huge run-up coming out of the March 2020 lows, many of the pandemic stock winners have come back down to earth, dropping 50% or more in 2021 while the S&P 500 continues to march higher.

Vimeo (VMEO -0.85%) has been no exception to this trend. The stock price for this video software provider is down about 66% from its 52-week-high six months ago and shortly after its mid-May spin-off from IAC/InterActiveCorp (IAC 1.00%)

However, while investors have soured on Vimeo, the business looks to be in fine shape and has a long runway to grow. That suggests now may be the time to purchase some Vimeo shares.

Video camera recording a person speaking.

Image source: Getty Images.

What is Vimeo?

Vimeo sells an all-in-one video software solution to enterprises, small businesses, and individuals. Essentially, by subscribing to one of Vimeo's product tiers, you get access to tools that will help you build, send, and communicate with videos, either across your organization or with the public. For example, Vimeo offers live streaming, content library hubs, an HD video player for replays, the ability to transform your videos into a subscription service, and many other tools for its customers.

These customers include individuals but also large enterprises. Amazon and Spotify are two customers of Vimeo that management has highlighted in the past. Both companies definitely have the software development talent to build Vimeo's tools for their in-house needs. However, they choose to pay for Vimeo's services because outsourcing these needs is easier from a time and money perspective.

This highlights the value proposition Vimeo provides: Outsourcing all the busy work of video production, distribution, and management.

Consistent top-line growth

Vimeo is seeing rapid adoption of its products. In the third quarter of this year, revenue grew 33% year over year to $100.1 million, driven by a 14% increase in subscribers and a 15% increase in average revenue per user (ARPU). Revenue growth has slowed from the depths of the pandemic when many organizations needed to rapidly adopt a video solution.

Management believes that, over the next five years, Vimeo can average a 30%-plus revenue growth rate as more and more organizations and individuals outsource video production to the company. With only 1.6 million total subscribers at the end of Q3, there is plenty of whitespace for Vimeo to go after.

This is especially true in enterprises. Enterprise revenue grew 60% year over year last quarter and now makes up 30% of Vimeo's overall revenue. The company just passed 6,000 paying enterprises on its platform. Vimeo for Enterprises was only launched around two years ago, in August of 2019, and with only a few thousand businesses using the solutions, it is likely the company has a long runway to grow with this division.

Strong product velocity

Vimeo subscribers already have access to a lot of products and tools, but in order to be a full all-in-one solution, management plans to release many more products to help improve the service's value proposition.

For example, Vimeo just released Vimeo Events, a new tool that helps people produce and manage virtual events. The product is tailored to get Vimeo into marketing departments around the world and should be able to save people time planning these video events by having automatic transcription and archives on a company's website. 

On top of this, Vimeo recently acquired two companies: Wirewax and Wibbitz. Wirewax is an interactive video studio that helps its customers easily add shippable features to videos, and includes companies like Disney and Nike as clients. Once Wirewax gets included under the Vimeo umbrella, the product will likely be a great value-add for new and existing customers. Wibbitz is a video production service for marketing and creative teams. This is very similar to the Vimeo Events product and should be an easy roll-up for the company.

Attractive valuation

With the stock price down so much, Vimeo has a market cap of approximately $3.2 billion. With trailing-12-month revenue of $369 million, that gives the stock a price-to-sales (P/S) ratio of 8.7. Moving further down the income statement, Vimeo had a gross profit of $268 million over that same time period, giving the stock a price-to-gross-profit (P/GP) ratio of 11.9.

The company hasn't generated consistent earnings, so it is tough to evaluate the business on any sort of earnings or cash flow multiple, but over the last nine months it did generate positive free cash flow, which is a good sign. If you believe Vimeo has a long runway to grow its subscribers and ARPU, then a P/GP of 11.9 looks attractive for a purchase of Vimeo shares right now.