What happened
Shares of the digital video solutions provider Vimeo (NASDAQ: VMEO) jumped on Thursday, rising 11% by 1:30 p.m. ET, compared to a 0.7% decline in the S&P 500. The rally put the volatile stock back in positive territory for the year, up 5% so far in 2023 compared to the wider market's 6% rise.
This jump was sparked by positive news on the earnings front.
So what
Vimeo published Q1 operating results before the market opened on Thursday, and Wall Street was happy with the update. While the company's sales continued to shrink, as they did in late 2022, financial trends improved.
Vimeo reported its third consecutive quarter of positive cash flow and adjusted profitability. Operating losses lessened to $3 million, compared to $26 million a year ago. "We're very much on track to simplify Vimeo and grow efficiently in the future," CEO Anjali Sud said in a press release.
Vimeo hasn't completely solved its growth challenges, but management said in a conference call with investors that they're seeing stabilization in the core content delivery platform following a growth hangover last year. "We are getting to a more normalized environment," executives explained.
Now what
The company's short-term outlook reflects those improving earnings trends. Vimeo is still expecting sales in 2023 to decline in the mid-single-digit percentage range, thanks to strength in its enterprise services platform and stability in the online subscription service. Net losses will be more modest than originally projected, though.
This slight upgrade to the outlook was enough to send the stock higher, mainly because shares have declined so far in the past year. Vimeo is down nearly 70% in that time, even after today's increase.
That wider slump reflects key concerns that investors have about whether Vimeo can create sustainable earnings growth over the long term. The company took a small step in that direction in early 2023 but will need to show much more progress on growth to change the wider investment outlook.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
