Vimeo is the market leader in innovation: analyst

Wells Fargo Sr. Equity Analyst Brian Fitzgerald joins Yahoo Finance to discuss the reasoning behind the bullish positioning on Vimeo, how Vimeo will compete against platforms like YouTube, and the impact of Vimeo’s partnerships.

Video Transcript

EMILY MCCORMICK: Welcome back. Time now for our "Call of the Day," and today we're looking at shares of Vimeo. Now those are trading higher by just over 3 and 1/2% this morning, and that's after Wells Fargo initiated coverage of Vimeo with a bullish overweight rating. We have Wells Fargo Senior Equity Analyst Brian Fitzgerald with us now. Brian, thank you so much for joining us. You wrote that you believe Vimeo's latest pullback since its second quarter results have been overdone, and that the valuation from here is an attractive entry point. What's the case for the stock to go higher from here?

BRIAN FITZGERALD: Yeah, thanks, Emily, for having us. We think Vimeo has a large and attractive addressable market for SMBs and enterprise video software tools. It's a $70 billion market by 2024. The upward inflection during COVID only pulled forward secular growth and enterprises. And small, medium business adoption of video still remains early.

So we think there's robust multiyear topline trajectory. We have a 30% five-year CAGR, and that's going to be driven by ramping consumer digital video consumption, particularly across mobile, connected TV and over the top. It's the proliferation of social media and marketplaces for video distribution. And then it's the short lifespan of video content assets. The average Twitter tweet has a lifespan of about 18 minutes.

BRIAN SOZZI: Brian, how large the threat is YouTube?

BRIAN FITZGERALD: It's a great question, Brian. So when we think about Vimeo, we call it the largest paid toolset. When you think about YouTube, YouTube probably has about 85% of the share in terms of domains and organizations. But among paid video software tool providers, Vimeo is the market leader in terms of brand, superior control, end to end functionality and ease of use. It's a really easy lift. And time to value advantages make it work versus competitors there. So innovation, R&D investment, and partnerships and distribution breadth are what resonates with Vimeo.

EMILY MCCORMICK: Speaking of partnerships, we recently had Vimeo announcing a partnership with Asana. I'm wondering, are there any other software or SaaS players that you think could make for a good tie-up here for this company?

BRIAN FITZGERALD: Well, absolutely. It's any software companies that need to use video in terms of work share flow or collaboration. It's also the social touchpoints. And so they also recently announced partnerships with TikTok, Pinterest. So anywhere you want to reach out and touch customers with video from an e-commerce standpoint, or anywhere where you need to use video to amplify collaboration. So I think there's a lot of runway in terms of how they can grow the market.

BRIAN SOZZI: Brian, you mention in the note that Vimeo is still reporting monthly statistics. How do you expect, first of all, what are they reporting each month? And what are you looking for over the next few months?

BRIAN FITZGERALD: Yeah, so this comes out of their heritage from being with IAC, which moved last year to reporting monthly stats. Match does it as well. Angie does it as well. And so they're going to continue to give us monthly updates of how the business is trending. I think part of the pullback of the stock was on a light print in Q2 they did say there was some headwinds from COVID, crosswinds from COVID. They're lengthening the enterprise sales cycle a little bit. We think the pullback is overdone, and we think the stock looks attractive here with great upside.

In terms of the monthly points, some investors are trying to take that 2Q print and then the quarterly updates and string out what does the Q4 print look like, and we think that's too early to do in terms of a company that's growing really fast, that's expanding their sales force, that's growing internationally, and that's also got a great product roadmap.

BRIAN SOZZI: And Brian, you spotlight also in your note, that Vimeo has a history of making acquisitions, really three major ones since May 2016. VHX, Livestream and Magisto. Do you see them making other acquisitions? And what would you like to see them make to help bolster their top and bottom lines?

BRIAN FITZGERALD: Well, I would like to see them expand internationally. So any international acquisition would make sense for us. Any tool sets that would help you create and speed up the ability to deploy to social networks as well. If you look at what's happening with that shortened lifespan of video content assets, particularly around social, it's necessitating more efficient automated creation tools. So any acquisition around that front would be great.

EMILY MCCORMICK: And Brian, I know you cover a number of other social media stocks and technology stocks in this sector. And I want to ask just a little bit broadly, as we think about advertising revenue trends, user growth trends, it's been a little bit of a choppy quarter on the COVID front with users starting to go back out, this reopening taking place, and then kind of shutting down, at least in the US in late summer of mid to late summer. So what are your expectations here when we think about a Facebook, a Twitter or a Snap thinking of some of those trends?

BRIAN FITZGERALD: Look, I think what we're seeing across the online advertising front, is ad rates, CPMs that are at pre-pandemic levels, higher than pre-pandemic levels, engagement continues to hold in there. And this is because we're continue to see a shift towards social shopping or what we're calling the democratization of e-commerce and shoppable ad formats inside of Pinterest, Snap, Facebook, Instagram.

So if you want to find your target audience and communicate with them, market to them, communicate with them and then transact with them, and you can do all that within these social spheres, that's a very compelling advertising use case. So you continue to see all those social spheres I just mentioned continue to grow that e-commerce piece of their business very well. And with that comes the great ad rates, because of the great ROI you see from these shoppable ad formats.

BRIAN SOZZI: Let's lock in on Facebook briefly here, Brian. And this has been a Teflon stock. Despite all of their troubles, most recently now you have "The Wall Street Journal" with their Facebook files, IOS concerns, the stock has continued to do well. Can you explain to the average investor why does this continue to happen, why is Facebook so Teflon in the markets? And do you think it could continue, because realistically, the headline risk seems to only be going up from here?

BRIAN FITZGERALD: Well, it's their breadth. I mean, they literally touch everyone on the planet, and the majority of small, medium businesses are on their platform as well, who aren't even using the ad products. So if you think about that ability as we open up locally to reach out and touch on a one to one basis your local consumer with a compelling shoppable ad format, that's great ROI, that's great ad spend. And so we think as we do continue to open up locally, that's one of the reasons why Facebook is so resilient.

EMILY MCCORMICK: All right, Wells Fargo Senior Equity Analyst Brian Fitzgerald, thank you so much.