Shutterstock Financial results : An Analysis

Listening in to Shutterstock’s financial results feels a little bit like being thrown back in time when Getty Images was a publicly traded company, with the numbers being obviously different.

 First the main numbers. Shutterstock has reported full year revenue of $235.5 million for 2013, up an impressive 39% ⁽¹⁾. While other companies in the same space are seemingly seeing single digit growth, if not retreats, it is quite a striking feast. However, overall, compared to Getty Images reported $897 million projected revenue for 2013, with $300 million coming from it’s budget, microstock division ⁽²⁾, it is still low. The good news is that it means there is room to grow and Shutterstock management seemed very confident it can capture it.

 The company now has 33 million images and 1.5 Million video files, provided by 55,000 independent suppliers, putting it in the top end of largest stock libraries in volume of available asset. On average, Shutterstock makes $6.64 per file in stock and each contributor, also on average, is worth $4,282/year. For comparison, in 2012, Shutterstock was making $7.37 per file. Thus, as expected, as it increases it’s overall offering, it is also decreasing the value per file hosted.

 Management credits three strategies for this continued aggressive growth : Increasing market share, both domestic and international, emerging markets ( video) and increase in enterprise clients.

Increase in market share, both domestically and international comes at a high cost. $16.5 million was spent in sales and marketing, an increase of 10 % ( $1.6 million), almost a quarter of it’s total revenue. It is to be expected in this space since the top microstock companies share the same content ⁽³⁾, the key differentiator between them is their ability to be discovered by new clients, mostly via aggressive SEO. We should certainly see this expenditure continue to grow as Shutterstock fights for additional market share.

The stock video market has been emerging for quite a while now and, while prediction have always been optimistic, it has yet to fully show its assumed potential. Part of the reason is that unlike still imagery, it is much harder to find a clip that perfectly fits into an existing production. It is also much harder to properly label for perfect search results. While it is certainly growing, it is growing for everyone and Shutterstock has yet to prove its competitive advantage in this field.

Finally, the enterprise market is a rather new step for the company and one dominated by giants with deep pockets like Getty Images or Corbis. Budget conscious companies might be at first attracted by pricing, but their demands on quality and artistry is much higher. Thus Shutterstock necessity to create Offset, a higher priced/higher quality imagery offering. For the time being Offset quality is poor compared to the competition, probably due to managements push to quickly fill the bucket rather than filter for high quality. Whether this collection will be able to compete with Getty’s images extremely well curated offering is still very much unknown. And unlike the small business/ home office buyers, enterprise clients take longer to change buying decisions. While it is currently 15 % of its revenue and management feels very bullish about its potential, we don’t see it as an easy / friction free climb.

This strategy is very similar to what we had heard from Getty about 10 years ago, if you add sound as an emerging market ( which didn’t prove to be very successful).

 The issues that Shutterstock faces, moving forward, are numerous. For one, the photo stock licensing business is not endlessly expandable. While they had put it in the range of $6 billion in their initial offering ( for 2017), no one has yet captured $1 billion. Getty Images has hit a wall close to that number and has since seem incapable of breaking it. There is nothing that Shutterstock is doing that is widely different than Getty. In fact, their growth strategy is very similar. Diversification is an option, one that management has already taken by offering learning videos via Skillfeed. Since it is not a proven market, it is hard to know how successful it might be. The danger here is that they put too much effort, and cash, in a failing adventure, something that has happened to Getty a few times.

The second issue we see is that the market is changing. Creating a large database of images in the hopes that some files will find a buyer, the consignment business Shutterstock is currently in, is being threaten by a new model that puts demand first and offer second. Fueled by connectivity, companies are now able to quickly match a demand from a customer by querying a vast array of photographers, by-passing the need for a central database of stored images. It is a much cheaper process that delivers more customized images along with the possibility of exclusivity, something that Shutterstock cannot offer.

A third issue is internationalization. In order to penetrate new international markets, it also need local culture sensitive images. A middle Eastern country does not consume the same images at the USA. That implies sourcing for local contributors which can become quite challenging in certain areas of the world.

Furthermore, Shutterstock is facing companies that have a much better understanding of how images are used and how effective they are. While they seem to have capture the download decision process, they are blind as far as the usage and effectiveness of their images once they leave their platform. While not in the licensing business, other companies, like Instagram, Stipple or Olapic can quickly tell which type of images offer the best engagements. They would be smart to either purchase that data or partner with one of them as usage analytic is key to their ability to deliver the right images.

 There is certainly room for the company to grow and even if they face a mighty, agile and smart competitor in Getty Images, they do have a management team capable of innovating quickly and efficiently. If asked, I would certainly not challenge their projection earnings for 2014 ( between $305 and $310 million). However, I would pay extreme attention to any signs of misdirection ( creating an emerging product with little market) and keep a very close eye to the space they involved in. As we have seen, a small company like Instagram ( a photo agency without the revenue) can very quickly grow and surprise everyone. As well, much bigger companies like Google, Yahoo, Microsoft , Apple , Facebook, Samsung are also very much interested in the photography space and might disrupt the status quo.

(1) it was 41% growth last year

(2) Getty Images is no longer publicly traded thus these numbers are not official.

(3) about 80% of microstock images are the same on competitive platform, since contributors upload the same images to multiple companies at the same time.