Shutterstock Continues To Deteriorate

Aug. 28, 2019 11:15 AM ETShutterstock, Inc. (SSTK)ADBE
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The Prospector
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Summary

  • The company reported anemic revenue growth figures, and revenue growth deceleration is becoming a major problem.
  • Enterprise revenue growth has fallen off a cliff and actually shrunk this quarter after being a prior source of optimism.
  • The $1.2B company has $260M in cash, but the business is struggling.
  • Revenue guidance for the year was cut to $645-670 million from the previous $685-695 million, which would amount to 3-7% growth, a sharp departure from recent years.

Thesis

Things continue to worsen for Shutterstock (NYSE:SSTK). The company missed Q2-19 consensus revenue and EPS growth estimates and announced that it was downgrading revenue growth guidance for the year to 3-7% vs. 12% growth seen in 2018.

Enterprise revenue growth, which had quickly become the company's answer to overall revenue growth re-acceleration in recent years, has fallen off a cliff. Enterprise revenue, which now comprises 40% of company revenue, was flat compared to Q2-18. This is a stunning deceleration. In Q2-18, enterprise revenue was up 35% and seemed to be firing on all cylinders.

The cost of acquiring e-commerce customers has gone up, and the company is reassessing its growth strategy. Though the company is sitting on a sizable cash pile, this is one of the lone bright spots, and it's likely the growth situation at Shutterstock could get worse before it improves, if ever. I am not an investor.

Q2-19: Growth Deceleration Intensifies

Between 2011 and 2015, Shutterstock had an impressive revenue growth rate that fluctuated between 36% and 45%. Growth began to rapidly decelerate in 2015 and had leveled off to a 12% growth rate in 2017 and 2018.

Source

One of the recent bright spots in Shutterstock's growth re-acceleration strategy was its pursuit of enterprise business, which consists of sales to creative teams in large organizations.

This time last year, enterprise sales growth was through the roof. Enterprise sales growth had consistently hit quarterly growth rates in 2017 and 2018 that exceeded 30%.

But that enterprise bright spot has dissipated entirely. Enterprise revenue - which now comprises 40% of overall revenue - growth came in below 8% last quarter and actually contracted -0.2% this quarter.

Company executives on the Q2 blamed themselves for the dropoff. The company is actively reevaluating its enterprise growth strategy.

Enterprise isn't

This article was written by

The Prospector profile picture
959 Followers
Long-term focus, with some exceptions. Self-taught investor. I started investing my own money in 2010 and have outperformed the S&P 500 in the years since.

Disclosure: I/we 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.

Additional disclosure: I am long ADBE.

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