Investors will always tell you that numbers don’t lie. While that can be debated (we have seen questionable accounting practices in the past), in the case of Shutterstock, they seem to hurt more than anything. The New York-based company posted adjusted earnings of 42 cents per share on revenue of $130.2 million while analysts expected earnings of 45 cents per share on revenue of $135.3 million. Revenue, for the year, increased 16 % from last year. To most companies, these numbers would cause for celebration. For a publicly traded company whose shareholders are accustomed to 30% increase, it’s bad news. The stock lost over 10% of its value in one day( he has since seemed to have recuperated). Some too quick to conclusion announced the end of Shutterstock. But with revenue hitting close to half a billion ( $494.3 million) it’s far from it.
Strangely enough, when Adobe Stock’s competition has been a recurring presence in all previous investors calls, this time, there was no mention of it. And it should have been. The San Jose-based company is relentless at not only growing its offering, both in size and diversity, in developing its channels of distribution and adjusting its pricing. It would not be a surprise that Shutterstock has now started to financially feel its presence. After all, both cover exactly the same core market with Adobe starting to make a push towards editorial as well. Market shares are bound to switch sides. Already, Shutterstock has admitted that their marketing has increased from 24% to 28%, partly due to on increasingly costly AdWords bids, fueled by the competition.
Editorial has not delivered as well and as quickly as estimated for a variety of reasons. One, and probably the most obvious, is mismanagement. By some probably misplaced ego, Shutterstock has made no effort to hire industry experts. Once Rex acquisition consumed, it let go the few knowledgeable market veterans. Not only they quickly ended up at the competition, they also took with them extremely valuable trust relationships built over many decades. Unlike commercial stock, editorial sales depend excessively on those relationships. As well, it never took the time to place an experienced strategist at its top, picking instead a financial analyst. Whatever your arrogance level, the editorial market will not bend to your needs that easily, especially when others are all charm and experience.
Unlike commercial stock, editorial cannot be sourced via UGC. It has to either be produced or brought in via partnerships. Either way, it is more expensive than UGC. From the cost of paying photographers either fees, higher commissions or salaries to revenue shares to be split with providers like AP, EPA and others. Thus Shutterstock’s CoG is rising.
Editorial also has its star photographers who provide a majority of the income and none of them, for the time being, are working at Shutterstock. Considering its current management structure, they are not likely to do so.
Finally, to truly succeed in the editorial market, one has to offer assignment services. Provide clients the ability to hire photographers for specific shoots. Not only the rates and margins are higher, they also provide the invaluable exclusive access to generates images the market really seeks. That is not a service Shutterstock currently offers and one that needs star photographers ( see above). It seems it might offer some service, via its loose association with SilverHub media, currently in a nasty legal dispute with Getty Images. And this is a segment Getty excels in and which takes years to build. There was no mention of it in this call or any previous ones.
Shutterstock is also experiencing a natural slowing growth. It is easier to grow from $100 million to $130 million than from $400 million to $420 million. While both are a 30% growth, the first is only $30 million difference while the later is $120 million. The market is not expandable ad infinitum. Cost and effort of acquisition are increasing as it moves towards the fringes of the marketplace. Under $200 a year budget image buyers are much harder to reach than large enterprise customers. To do so, Shutterstock is engaged in a multi-year restructuring that will allow them to switch from a marketplace to a platform. While what the end result will look like is unclear – CEO Jon Oringer did not want to elaborate- we can see a preview with its currently available online editor. To seduce sporadic image buyers, a company has to offer a broader services: Not just image downloads but tools to customize the image for the final usage. Companies like Placeit or Canva have demonstrated that there is a large appetite for these value-added services that seduce even the most unsophisticated image buyers. Adobe Stock, with its deep Photoshop ( and other) integration, offers the same. If Shutterstock wants to remain competitive, it has to play in. The issue is that under the current technology build, it cannot deliver. It is making progress in upgrading its infrastructure but could be losing valuable time.
Needless to say, Shutterstock is neither dying nor sick. In fact, it is doing quite well. It is experiencing growing pains, probably made worse by an arrogant company culture. But it seems perfectly on track to continue to grow, albeit maybe at a smaller pace than historically. Question is, will Wall Street be patient and understanding or will it make it go through the same ordeal that Getty suffered many years ago. Our bet is on the latter but hey, we don’t pretend to be financial analysts.
Photo by Anthony Quintano