Is Vimeo (VMEO) A Smart Long-Term Buy?

Alphyn Capital Management, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here.  A quarterly portfolio net return of 6.6%, and 13.8% gains was recorded by the fund for the second half of 2021, below its S&P 500 TR benchmark that delivered a 15.3% return for the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Alphyn Capital Management, the fund mentioned Vimeo, Inc. (NASDAQ: VMEO), and discussed its stance on the firm. Vimeo, Inc. is a New York, New York-based video hosting, sharing, and services platform provider, that currently has a $7.15 billion market capitalization. The stock closed at $45.06 per share on July 16, 2021.

Here is what Alphyn Capital Management has to say about Vimeo, Inc. in its Q2 2021 investor letter:

“Clients will notice a new ticker, VMEO, on your brokerage statements following its spin-out from IAC. I profiled IAC’s companies, including Vimeo, in some detail last year. The pandemic accelerated the use of video by both enterprises and small businesses, and I believe this will continue given the high engagement that video generates. The most recent numbers bear this out: May revenues rose 42% from a year earlier while subscriber base and average revenue per user increased 18%. With its comprehensive set of tools to make video creation more accessible, Vimeo has a great opportunity to capture a share of this growth. It further benefits from an attractive customer acquisition funnel – 65% of Fortune 500 enterprises have at least one self-serve Vimeo subscription (with ARPU6 of $250). The company is building out its sales team to help upsell these into enterprise accounts (with ARPU of $12,000). Finally, by buying IAC shares ahead of the spin, we received a long-term, high-growth SAAS “call option” at a much more palatable valuation than the current 20x price-to-sales. Historically, it has been very rewarding to hold onto IAC spins…”

Based on our calculations, Vimeo, Inc. (NASDAQ: VMEO) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. VMEO delivered a  -0.25% return in the past month.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.