06 Nov 2015 Shutterstock Shares Slightly Up on Q3 Earnings Rise of 28%

Shutterstock has reported 28% growth for the third quarter of 2015, with enterprise and video being the main drivers of growth.

Contributor royalties as a percentage of revenue remain stable at 29% while the paying user base expanded to 1.4 million customers.

Although the company reports no meaningful impact from Adobe on revenue with both downloads and revenue per download up, they did acknowledge an increase in advertising costs from new competitors bidding up keyword prices.

Key Details

The full report is available here, but these are the highlights:

  • Third quarter revenue increased 28% as compared to the third quarter of 2014 to $107.3 million.
  • Paid downloads increased 22% and revenue per download increased 4%
  • User base expanded to approximately 1.4 million customers
  • Contributor royalties were stable at 29% of total revenue in Q3
  • Adjusted EBITDA in the third quarter increased 11% to $19.6 million.
  • Image collection expanded 49% to 63.7 million images and video collection expanded 60% to 3.3 million video clips
  • The board approved a $100M share repurchase program

Interesting Points

Laying to bed recent rumours that Shutterstock may be planning to acquire traditional stock agency Corbis, CEO Jon Oringer said in response to a question about possible future acquisitions that the company was only interested in acquisitions that contributed to growth and that were forward looking. Both factors rule out Corbis as an acquisition target.

Video and enterprise contributed most to growth, with the enterprise customer base up 50% from Q3 last year. Oringer said only 2% of the customer base has converted to enterprise, leaving a lot more room for growth. He also cited exclusive distribution partnerships like that with Red Bull Media House starting in 2016 as key for growing the video business.

New acquisitions PremiumBeats and Rex Features accounted for roughly 3% of growth for the quarter. Shutterstock said it’s too early to evaluate the impact of the music offer, and that the entrance to editorial market is very valuable to them. Again, exclusive content deals like that with Penske Media earlier this year were also mentioned as very important to enforce exclusive content.

Shutterstock’s earnings don’t yet show any major impact from Adobe’s entry to the market. However, they reported a 30% rise in marketing expenses citing increased “keyword prices” in their online advertising as one of the main reasons. This is no doubt completely caused by the $45B Adobe out-spending the $1.2B Shutterstock on Adwords.

Impacts of currency were mentioned frequently by new CFO Steve Berns on the earnings call, keen to avoid the experience of the previous quarter where currency fluctuations caused the company to miss revenue guidance and caused – along with other factors – a 30% drop in share price. Berns said that 70% of the company’s revenue is generated from customers outside the US, but that only 30% of that was affected by currency fluctuations –mostly the Euro and the British pound.

They reported strong responses in customer growth and retention from switching from daily to monthly download limits and the new 350-image subscription introduced this quarter.  Oringer was keen to emphasize during the questions that testing these prices and products was not in reaction to competitive pressure, but that Shutterstock has been testing prices continually for 13 years.

Last, they’ve generated $14.8M in free cash flow this quarter, finishing with $282M in cash. As their capital objectives are still focused in investing in the company and in external opportunities, their positive cash balance and sustained operating momentum lead them to start a program to repurchase shares for a total of $100M.  The pace of the program will be determined by market opportunities and results from their strategic initiatives.

Shutterstock’s shares closed at $33.23 up from $27.99 at the previous day’s close.

1Comment
  • Pavel Orekhov
    Posted at 17:23h, 06 November Reply

    For me Q3 results were 1) very expected from the beginning of this year when the played team (a lot of really professional guys) had left SS; and 2) became sort of obvious after the Q2 results.
    28% (actually 25%) growth Y/Y is good. But for a publicly traded company it’s a disaster.
    As Paul Melcher wrote in his great post http://blog.melchersystem.com/?p=3709, the Wall Street guys are interested only in companies with 30%+ growth. If there is guidance that a company will grow less, it’s a clear signal for them to become bearish and sell the stocks.

    Probably stock video is the only major growth driver for SS now (among other microstock products) and although they were asked, they didn’t provide their perspective on the future growth of stock video (like in 2017+).

    Q4 2015:115,8mil guidance, Q4 2014: 91,2mil result. So, the expected growth: 27%. Minus Premium beat and Rex, that are not related to contributors’ earnings (3% out of 28% growth in Q3) = approximately 24% growth according to the guidance.

    The main roadblock related to SS growth might be in strategy. They built great loyal contributor and customer bases, but when the competition increases in the oversupplied market, it’s all about delivering the unique value – smth that competitors can’t do.
    Unfortunately i don’t really see SS did anything to get a substantial competitive advantage in the long term yet.

    But it doesn’t mean they will never get this advantage. There are a lot of possible scenarios:

    1) the most straightforward – they launch the premium collection with exclusive content to provide unique content to customers (they are starting to do it now, but not with general microstock content coming from contributors as the main sourcing channel);

    2) they acquire a company that will push their growth and integrate it with their platform to acquire different cohort of customers/deliver content with different value to existing ones (ex. 500px, but announcing stock repurchase program they are likely not going to do so in the nearest future);

    3) they really innovate with products and notice the ascending trend of a new product in the very beginning (ex. WordPress plugins, mobile products, games, augmented reality apps etc). Music is fine, but they need smth much better. They can do that if they have a visionary skill and smart strategy.

    4) they build new way of acquiring new customers=open new markets (ex. social media ones). Technology is not standing still.

    5) they launch very good education on-line coursers for… potential customers for free or smth non-commercial and really valuable (ex. for kids) to expand reach and nurture the loyalty of potential customers from the very start.

    6) they make a strategic partnership where both companies will win (ex. with Canva)

    and others.

    It’s really interesting how SS will cope with this declining growth dynamic. i believe they have enough potential to boost it again.

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