Shutterstock’s Q1 2024 revenue reached $214 million with EBITDA of $56 million, surpassing expectations.
Revenue growth in the data distribution and services sector was 90%, now constituting nearly 20% of total revenue.
The content business is working towards growth, with demand from larger customers increasing. Small- and medium-sized customer demand remains subdued.
Strategic Developments
Announced the acquisition of Envato, aiming to accelerate Shutterstock’s long-term revenue and EBITDA targets.
Envato acquisition is expected to enhance Shutterstock’s product offerings, audience reach, and content diversity.
Envato will contribute to increasing Shutterstock’s subscriber count and subscription revenue significantly.
Product and Market Insights
Shutterstock introduced a generative AI subscription, leveraging models from Google, OpenAI, and Amazon. Plans to expand generative asset offerings are underway.
The company is experiencing rapid contributor and library growth, with a 40% increase in contributors and a 34% increase in assets.
Shutterstock’s data business is benefiting from emerging legislation and demand for ethically sourced data sets for AI training.
Financial Updates
Content revenue declined by 10%, aligning with expectations. Data distribution and services revenue increased significantly by 90% to $40 million.
Adjusted EBITDA for Q1 was strong at $56 million, with a margin of 26.1%.
Shutterstock increased dividends by 10% to $0.30 per share, marking the fourth consecutive year of double-digit increases.
Envato Acquisition Financials and Outlook
Envato is expected to add 20% to Shutterstock’s revenues and 15% to adjusted EBITDA on a full-year basis.
Shutterstock secured a $375 million credit facility with favorable terms for the Envato acquisition.
Post-acquisition, Shutterstock’s leverage will be low, with net debt to adjusted EBITDA at 0.7x.
Raised 2024 revenue guidance to 5.5% to 7% growth, with adjusted EBITDA guidance increased to $245 million to $248 million, including Envato’s impact.
2024 Guidance and Long-Term Targets
Updated 2024 guidance reflects strong Q1 performance and the anticipated closing of the Envato acquisition in Q3 2024.
Shutterstock is on track to exceed its Shutterstock 2027 targets of $1.2 billion in revenue and $350 million in EBITDA.
Question and Answer
Guidance Change and Envato Acquisition
Question
How should we think about the guidance change for the addition of Envato versus organic changes to the guidance?
Answer
The guidance change reflects Shutterstock’s strong first-quarter performance, particularly in the data distribution and services business, and incorporates the expected contribution of the Envato acquisition, assuming it closes in the third quarter.
Envato is expected to contribute approximately 20% to Shutterstock’s revenues and 15% to EBITDA for the full year.
Data Distribution and Services (DDS) Business and Computer Vision
Question
Is $60 million still the right number to think about for computer vision in the DDS business, considering rumors of an Apple deal?
Answer
Shutterstock does not comment on specific customer deals or their contributions.
The $60 million reference for data should be considered as increasing, and the company’s 2027 plan includes 20%+ growth for the DDS business and its components, which appears conservative based on the strong first-quarter performance.
Giphy Expenses and Profitability
Question
How should we expect Giphy expenses to pace throughout the year, considering Meta’s reimbursement and Shutterstock’s sales force hiring?
Answer
While Meta reimburses many cash expenses, all typical salary and bonus expenses for Giphy employees impact Shutterstock’s EBITDA.
Shutterstock is aggressively hiring for Giphy, including sales and business development professionals, to meet market demand.
As Giphy’s revenue grows, it will positively impact profitability, and the company expects sequential profit improvement as revenue outpaces expenses from sales force hiring.
Data Sales Business and Envato Acquisition
Question
Can you provide insights into the data sales pipeline and how adding Envato to the data corpus will impact the data sales business?
Answer
While specifics on the data sales pipeline are not disclosed, Shutterstock highlights strong demand in the context of a changing regulatory environment and increasing interest in ethically sourced content.
The acquisition of Envato, with its diverse and specific content offerings, is expected to be beneficial for the data business, as there is an insatiable demand for a variety of content types.
Envato Acquisition and Subscriber Base
Question
With the Envato acquisition doubling your subscriber base, what opportunities are there for cross-selling?
Answer
The acquisition of Envato presents various cross-selling opportunities, including offering content not currently available to Envato customers, potentially increasing retention and upselling opportunities.
Additionally, the acquisition is expected to complement Shutterstock’s offerings for small and medium-sized customers, filling a gap between packs and larger subscriptions.
New Guidance, Envato Acquisition Timing, and Content Business Trends
Question
Does the new guidance assume Envato will be added to revenues and EBITDA from the start of Q3, and can you discuss trends within the content business, including any month-on-month improvement and observations from April?
Answer
The acquisition of Envato is more likely to close in the back part of Q3, and the company feels confident about the deal.
Positive trends are observed in the small and medium business, indicating that charging for content has been well-received, leading to increased downloads and customer engagement.
Shutterstock expects its content business to return to growth in the back half of the year and anticipates year-over-year growth in content to improve each quarter, both in terms of percentage and sequential revenue contribution.
The company is encouraged by what it is seeing in April and believes that extracting itself from the free trial model was the right strategic move for building a more sustainable and faster-growing content business.
Data Demand Beyond LLMs and Go-to-Market Strategy
Question
As the pace of building GenAI applications accelerates, where are you seeing demand for data beyond LLMs, and how has your go-to-market strategy evolved to monetize this data opportunity?
Answer
Shutterstock is experiencing demand from both new and existing customers for greater scale in existing content types, specific metadata, and specialized content types.
There is a misconception that visual media content is only needed for companies training image or video generators, but in reality, multimodal models require visual media training data even for chat-based or large language models.
Shutterstock’s pipeline and distribution are trending positively, with strong demand across various model types, particularly as multimodal applications become more prevalent.
Giphy Business Challenges and Monetization Timeline
Question
What are some of the challenges in scaling up the Giphy business, and when can we expect a more meaningful impact from Giphy on your top line?
Answer
Restarting any business from a cold start involves challenges such as reestablishing relationships with potential advertisers and securing budget allocations.
However, Shutterstock believes the market is moving in its favor, and it is seeing high interest and an increasing average order value (AOV), indicating a positive trend for Giphy’s advertising model.
While the company does not provide an exact timeline for significant revenue contributions, it is making progress each month and is confident in overcoming the hurdles associated with building a successful ad platform.
Giphy Business and Potential Partnerships
Question
Given that Giphy is an advertising business, do you think a potential third-party partnership with a larger platform could expedite its monetization?
Answer
Shutterstock acknowledges the potential for partnerships with larger platforms to accelerate the monetization of Giphy and confirms that it is exploring such opportunities with interested parties.
Data Deal Recognition and Contributor Base Growth
Question
Were the data deals signed in the quarter all recognized ratably, and can you provide any color on whether data revenue grew year-on-year? Additionally, what trends are driving the growth in the contributor base and library?
Answer
Shutterstock increasingly structures data deals to recognize revenue over time, leading to inherent lumpiness in the business despite a growing base of recurring revenue.
The company is excited about the momentum in data, Giphy, and studios, considering them as three large total addressable market (TAM) opportunities with significant growth potential.
The growth in the contributor base and content library is driven by the evolving market trends and Shutterstock’s expanded acceptance of content for data purposes, leading to increased demand and supply across various content types and use cases.
The company’s content-centric approach and ability to identify supply gaps and fill them through acquisitions contribute to the positive trend in contributor base growth.
