Shutterstock Images - Growth Story At Fair Valuation For This Recent Public Offering

| About: Shutterstock (SSTK)

Shutterstock Images LLC (SSTK) made its public debut on Friday. Shares of the industry-leading marketplace for commercial digital imagery ended their first day up 27.4% up at $21.66 per share.

The public offering

Shutterstock Images, founded in 2003, operates a global market place for digital imagery. This includes licensed photographs, illustrations and videos which are used for visual communications, corporate communications, books and video content.

The company has more than 550,000 active and paying users in 2011. The firm has more than 35,000 approved contributors making images available to the library, which reached 19 million images as of April 2012. In 2011, more than 58 million paid downloads have been made by its customers.

The company sold 4.5 million shares for $17 a piece. Shutterstock raised $76 million in gross proceeds in the offering process. Based on the offer price of $17.00, the company is valued at $558 million.

The offering is a great success. The offer price was set above the expected $13-$15 price range set by the company and its bankers. All of the shares offered in the company were sold by the company. In total, 14% of the company's shares outstanding were offered. At Friday's closing price of $22.00 per share, the company is valued at $722 million.

Major banks which brought the company public were Morgan Stanley, Deutsche Bank Securities, Jefferies, RBC Capital Markets, Stifel Nicolaus and William Blair.


Shutterstock operates in a niche-market by creating a global marketplace for commercial digital imagery. The market for pre-shot commercial digital imagery is expected to exceed $5 billion in 2013, according to a BCC Research report. Growth is driven by demand from businesses, marketing agencies and media organizations. Rapid technological advances have reduces the costs to create and license images.

For the annual year of 2011, Shutterstock generated revenues of $120.3 million, up 45.0% on the year. The company reported net income of $21.9 million, up 15.5% on the year before.

Shutterstock intends to use the proceeds of the offering for general corporate purposes. Proceeds will be used to finance capital expenditures and increase working capital. Furthermore, Shutterstock might make acquisitions or invest in other companies, products or technologies.

Excluding the offering proceeds, the company operates with roughly $14.1 million in cash and equivalents. The company operates without any debt, for a net cash position of $14 million. Based on the $76 million in gross proceeds, the net cash position will come in around $80 million.

As such, the valuation of Shutterstock Images comes in at around $640 million. Based on a rough annual revenue estimate of $175 million for 2012, the market values the operating assets at 3.7 times annual revenues. Based on last year's earnings of $21.9 million, the company is valued at 29 times annual earnings.

Investment Thesis

The offering of Shutterstock Images is a great success. Initially, the company was supposed to go public for a price between $13 and $15 per share. Eventually shares were sold for $17 per share, above the initially guided price range. Shares opened with large gains at $22.50 per share and ended the week at $22 per share.

As such, shares are trading some 57% above the midpoint of the initial guided price range. The company intends to retain all available funds and any future earnings for the foreseeable future.

The sentiment around the offering has been very strong. Despite the strong returns in the first days as a public company, Shutterstock trade at a fair valuation. Shares are valued at 4 times annual revenues and roughly 30 times earnings, which is not excessive given the strong growth demonstrated in recent years.

I think shares of Shutterstock Images are recently attractive for the long term. The company is growing rapidly and generates roughly half of its revenues from stable subscription services. I think Shutterstock offers long term investors with a good growth story at a fair valuation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.