2023-10-16 15:42:28 ET
Summary
- Shutterstock, Inc. operates globally, providing diverse visual and audio content, facing fierce competition from tech giants.
- Projected revenue growth rates at 5% CAGR for 2023 depict an uphill battle in a saturated market.
- Valued at 8x forward EPS, Shutterstock stock prices reflect uncertainty amid modest growth prospects and intense competition.
Investment Thesis
Shutterstock, Inc. ( SSTK ) is a global provider of high-quality visual and audio content for businesses and creatives, offering a vast library of images, videos, and music.
In a highly competitive environment, Shutterstock faces strong rivalry from other content providers and tech giants vying for market share.
Paying 8x forward EPS appears to be a reasonable and fair valuation for Shutterstock stock given the competitive landscape, its market position, plus its fairly stretched balance sheet .
Shutterstock Near-Term Prospects
Shutterstock functions as a global creative platform, fostering the exchange of diverse content between users and contributors worldwide. It offers a wide array of content types, including images, footage, music, and 3D models, catering to the creative demands of industries like advertising, media, gaming, design, and architecture.
Upholding stringent content quality standards, Shutterstock employs a blend of thorough vetting procedures and AI-driven technology to ensure the integrity of its extensive content library. Through a mix of subscription-based and transactional licensing models, the platform serves a broad customer base, ranging from corporate professionals and media companies to small and medium-sized businesses, as well as individual creators globally. Utilizing an intuitive interface, advanced search algorithms, and streamlined content review processes, Shutterstock aims to simplify the creative workflow for users while providing valuable insights and tools for contributors.
Shutterstock's near-term prospects appear promising, particularly with its robust data engine. The company has strategically forged key partnerships with industry giants such as Google, OpenAI, LG, Meta, and Nvidia (NVDA), which have significantly bolstered its data-driven offerings. With a focus on generating revenue from its data engine, Shutterstock has seen remarkable growth, from $4 million in 2021 to $20 million in 2022 and further to $34 million in the year 2023 to date. This upward trajectory, along with the recent Google partnership and an anticipated increase in data revenue in the second half of the year, signifies an alluring potential for Shutterstock's data-centric business strategy.
Additionally, its efforts in expanding the contributor base and content library to accommodate the growing demand for generative AI data have positioned Shutterstock as a key player in the burgeoning market, laying a solid foundation for continued growth in the near future.
However, Shutterstock faces several challenges in its path to sustained growth. Despite its substantial efforts in promoting generative content, the adoption of such content in place of original stock content for marketing campaigns remains limited. Concerns surrounding indemnification and intellectual property, coupled with the current limitations in producing truly photorealistic outputs, hinder the widespread adoption of generative content in marketing initiatives. Moreover, the competitive landscape in the E-commerce channel poses a challenge, with underinvestment in marketing adversely affecting customer acquisition.
While efforts to optimize pricing, packaging, and marketing strategies are underway, enhancing the conversion funnel and addressing customer retention issues will be crucial for Shutterstock to regain momentum in this domain.
In light of this, let's now scrutinize its financials.
Revenue Growth Rates Slow Down
Shutterstock started 2023 by guiding for around 3% CAGR. It then upwards revised the lower end of its full-year guidance, leading one to believe that Shutterstock was more likely than not to reach 3% y/y growth rates, and perhaps surpass this figure and reach mid-single digit growth rates this year.
Then, together with its Q2 results, Shutterstock once again slightly raised the midpoint of its guidance so that it now appears very likely that when 2023 is completed its full-year growth rates will probably reach 5% CAGR.
In the fast-evolving landscape of digital content, Shutterstock has been grappling with a challenging uphill battle to secure its foothold amidst cutthroat competition, particularly from the likes of Adobe Stock ( ADBE ) and others too.
Despite its established reputation and expansive library of stock images, Shutterstock's struggles to differentiate its offerings and adapt to the shifting demands of the market have posed significant obstacles to its growth trajectory. As the digital content sphere becomes increasingly saturated, Shutterstock faces the pressing need to redefine its strategies and revamp its value proposition to remain a formidable contender in the industry.
Bearing this in mind, let's discuss its profitability.
SSTK Stock Valuation -- Fairly Valued
After several raises to its bottom line EPS, in the best-case scenario, Shutterstock's EPS will reach $4.17 per share. That would be approximately 8% y/y growth relative to its 2022 EPS.
If we presume that Shutterstock's EPS line grows by around the same amount next year, this would see Shutterstock's EPS reaching approximately $4.50. This leaves its stock priced at 8x forward EPS. That's already a fully priced stock, particularly given its lackluster growth and highly competitive environment.
Furthermore, Shutterstock holds less than $90 million in cash and has approximately $30 million of debt due in the next 12 months, which further complicates the appeal of investing in this stock.
The Bottom Line
In the dynamic sphere of visual and audio content, Shutterstock operates as a prominent global platform. Despite its strategic alliances and robust data engine, the company grapples with formidable challenges, including heightened competition from industry giants. As indicated by its revenue growth rates, projected at 5% CAGR for 2023, Shutterstock faces an uphill battle to maintain its standing in a fiercely competitive market, struggling to differentiate its offerings and adapt to evolving industry demands.
Considering its financial outlook, the stock valuation of Shutterstock, Inc. at 8x forward EPS appears to be at a fair point, reflecting the uncertainties embedded within its growth trajectory.
With limited cash reserves and impending debt obligations, the investment appeal of Shutterstock is further complicated, urging caution in evaluating the potential risks associated with this investment in the context of its relatively modest growth prospects.
For further details see:
Shutterstock: Evaluating Its Valuation Amidst Fierce Competition