The Stock’s Rising Sentiment Means Investors are Catching On

Vimeo, Inc. (NASDAQ: VMEO), considered in the past a rival to Alphabet’s YouTube, has slowly transformed itself into a platform to produce, host and, most importantly, distribute high-quality video for professional creators and enterprises. The fundamental story, as reflected in MarketGrader’s analysis, speaks to an investment cycle that seems to be bearing fruit at the right time.

MarketGrader initiated coverage of the stock with a ‘Sell’ rating in December 2021, when it traded at $18.42. We maintained our negative rating until February 29^th of this year, when we upgraded the stock to ‘Hold’ with the shares trading at $4.79 a share, 74% below their price when we started covering the company. Since our upgrade, the stock has risen 42% (through November 8^th). Today we maintain our ‘Hold’ rating based on our overall grade of 55.0 (out of 100), but we think the company might be on the cusp of reporting a string of strong fundamental results, and based on recent stock momentum, investor seem to agree.

The company’s quarterly sales were essentially flat when Vimeo last reported earnings on November 5^th, but its net income rose almost 10% from a year earlier, which, while definitely not spectacular, represents the continuation of a trend towards higher profits, better margins, and rising free cash flow, and a far cry from the period between June 2021 and March 2023 when the company reported eight quarterly losses in a row. Given the company’s lackluster top line growth, we give it a middle-of-the-road ‘B’ in our Growth analysis.

Our Value analysis grades the stock a little better, assigning it a ‘B+’, in part because its forward P/E of almost 40 seems relatively high when compared to its EPS growth trend; however, analysts covering the stock have collectively raised their guidance for FY 2025 earnings by 220% in the last three months, which shows up in our Sentiment Analysis (more on this below).

Rounding out our GARP + Quality analysis are our two ‘Quality’ categories, Profitability and Cash Flow, where the stock earns somewhat middling grades of ‘B-’ and ‘B+,’ respectively. In profitability, our biggest knock on the company is its inability to translate its remarkable 78% gross margin into much higher operating margins, which stood at 6% in the 12 months ended last quarter (9/30). Assuming the company’s positive free cash flow growth continues, as it has in the last six quarters, we expect its profitability indicators to improve materially in 2025. The company has virtually no debt and cash on hand that’s equivalent to 29% of its market capitalization.

So, in addition to this apparent fundamental turnaround, what caught our attention about Vimeo now? The stock’s remarkable rise in its Sentiment overall score of 9.6 (out of 10), propelled by very strong momentum and impressive strength relative to all U.S. stocks. Two weeks ago, before reporting earnings (and before the U.S. election), Vimeo ranked among the bottom 48% of stocks in the U.S. based on relative strength; today it’s in the top 7%. When comparing it only against all technology stocks in the country, it also went from the bottom 48% two weeks ago, to the top 11%. The stock’s remarkable Sentiment score propelled it near the top of two of our most popular lists of ideas: MarketGrader’s Best Momentum Stocks and MarketGrader’s Improving Earnings Guidance Stocks. Assuming the recent change in market leadership in favor of small and mid-cap stocks continues, investors could do worse than to tune in to Vimeo’s stock now.