Following in the footsteps of Match Group and Expedia, Vimeo (VMEO) is the latest company to be spun off from Barry Diller’s IAC.

The video-software company entered the stock market earlier this week and has made an inauspicious start to life as a public entity, with shares down by 26% already.

However, Truist analyst Youssef Squali expects Vimeo to claw back those losses and sees a lot to like about the company often referred to as the “indie YouTube.”

Squali initiated coverage with a Buy rating and $54 price target, suggesting upside of ~29% in the year ahead. (To watch Squali’s track record, click here)

“We believe Vimeo provides a differentiated offering which caters to both enterprises and self-serve customers,” the 5-star analyst said. “We expect Vimeo to continue to capture share of its large TAM through product innovation and increased enterprise video use cases.”

Vimeo is a freemium platform with over 200 million users, and while its business model means it does not generate direct revenue from all its offerings, Squali believes a “vast majority of Vimeo’s value and revenue are built around its tiered priced subscription product.”

Using a software-as-a-service (SaaS) model, the subscriptions are sold to businesses and video content producers – anything from film, animation and music artists to corporate event planners – with video creation, editing, and broadcasting tools as part of the package.

The analyst expects the platform will be a “decade-long growth compounder with attractive unit economics,” using SMBs (small and midsize businesses) and enterprises’ strong video consumption as leverage.

These customers have driven substantial revenue growth over the past few years and Squali expects the trend to continue. In 1Q21, revenue increased by 57% year-over-year, and while this was partly driven by Covid-19, over the next 5 years, Squali expects the company to sustain growth of ~30% with margins improving to over 20%.

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And while traditionally, the platform has attracted more SMBs, the Enterprise contribution is growing. Customers from the segment increased by 87% in 2020, to reach 25% of total revenue. Once again, Covid acted as a tailwind, yet Squali believes “demand for video services will settle above pre-pandemic levels as both SMBs and Enterprise use cases continue to evolve.”

Furthermore, Vimeo’s freemium model appears to be working as as a “large and effective customer acquisition funnel.” 60% of Self-Serve subscribers are free users initially, while 65% of Enterprise customers begin as Self-Serve and free users.

Vimeo’s short time on the public markets means there is currently just one other analyst following its trajectory. With an additional Hold rating, the stock qualifies with a Moderate Buy consensus rating. (See VMEO stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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