Vimeo stock has potential despite its disappointing market debut

Vimeo Stock: Another bird has left the nest for IAC Interactive. Vimeo, the video-creation platform, debuted on the stock market May 25. Vimeo is now the 11th company taken public by IAC (NASDAQ:IAC) in a spin-off.

ELI5: A spin-off is the separation of a business unit/subsidiary into a standalone company – trading with its own ticker in the stock market.

IAC Interactive: The parent to your favorite brands

IAC owns over 150 companies in the media internet space – including Investopedia and HomeAdvisor. Some of the other big-name companies spun off by IAC include…

• Match (NASDAQ:MTCH), the online dating service, up 38% since its July 2020 spinoff.
• Expedia (NASDAQ:EXPE), the online travel booking site, created by IAC in 2001 and spun off in 2005.

In 2006, IAC acquired College Humor for $26m and Vimeo was a part of the package. 15 years later, that investment turned into an $8b company – becoming a homerun for IAC.

IAC’s next child to go public, Vimeo stock

In 2018, Vimeo pivoted from being a Youtube-like streaming service into a video creation tool — which paid off during COVID. Vimeo benefited from the lockdown as people turned to video services to virtually connect — resulting in a strong year:

• $89.4m sales in the first quarter of 2021, up 57% from Q1 2020.
• $3.3m net income in the first quarter of 2021, up from $20.3m net loss in Q1 2020.

Despite the promising numbers, Vimeo stock fell 13% on its Tuesday trading debut. To make things worse, the company expects its growth to slow to 30% in 2021. But it’s not all bad. According to Vimeo:

• Majority of its customers are small businesses — many of which were shut down during the pandemic.
• Sales is expected to speed up again in 2022 from investments made this year.

Upon going public, Vimeo was valued 3x more than what it was 6 months ago — so if investors are looking for something to blame for its drop, blame it on the valuation.

For investors: A good time to be a video company

With expectations for the online video platform industry to expand 21% annually through 2028, Vimeo’s growth is coming at a good time – the question is, can they capitalize on it?

That depends. While Vimeo’s financials are strong, its fate falls on the adoption of its video platform by businesses/consumers – and the demand for video platforms post-COVID.

Learn more: How long should you wait before investing in a company that recently went public?