IPO Preview: Shutterstock

| About: Shutterstock (SSTK)
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Based in New York, NY, Shutterstock (NYSE:SSTK) scheduled a $63 million IPO with a market capitalization of $459 million at a price range mid-point of $14 for Thursday, October 11, 2012.

10 IPOs are scheduled for the week of October 8. Full IPO calendar available here.

S-1A filed September 27, 2012

Manager, Joint Managers: Morgan Stanley; Deutsche Bank Securities; Jefferies.

Co Managers: RBC Capital Markets; Stifel, Nicolaus Weisel; William Blair.


SSTK has acquired and is continuing to acquire digital images, which it makes available on a subscription and an on-demand basis.

For the six months ended June 2012 revenue was up 44% compared to the year earlier period, but net income was flat, and free cash flow as a percent of revenue declined. IPOdesktop likes to see an uptrend not only in sales but also profits & cash flow for the quarters leading up to an IPO.


Because SSTK's revenue stream is predictable and growing, and because SSTK generates positive cash flow, IPOdesktop believes SSTK will increase from it's IPO price. Comparing six month results - which shows profit is not growing and free cash flow is declining as a percent of revenue - does raise some operational questions, however.

Valuation Ratios

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annualizing June 2012 6 mos, 43% tax rate






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Glossary of IPO Analysis terms


Quarterly results

March, '11

June '11

Sept '11

Dec '11

March '12

June '12








Net income adj for 43% tax rate







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2012 quaterly numbers are not 'proforma' compared to the proforma June 6 mos 2012 results.


As an online marketplace, SSTK generates revenue by selling image licenses. SSTK pays royalties to contributors for each of their images that is downloaded.

About half of SSTK's revenue and the vast majority of downloads come from subscription-based users.

Subscription users can download any image in the library at any resolution offered for use in their creative process without worrying about incremental cost. For users who need fewer images, SSTK offers simple, affordable, On Demand pricing, which is presented as a flat rate across all images and sizes that we offer.


More than 550,000 customers from more than 150 countries contributed to SSTK's revenue in 2011. The top 25 customers accounted for less than 2% of revenue.

In 2009, 2010 and 2011, SSTK experienced year-to-year revenue retention of 82%, 96%, and 102%, respectively. This means that customers that contributed to revenue in 2010 contributed, in the aggregate, 102% as much revenue in 2011 as they did in 2010.

Customers typically pay upfront and then use their downloads in a predictable pattern over time, which results in favorable, predictable cash flow.


SSTK's cost of revenue is substantially similar as a percentage of revenue for both On Demand and subscription-based purchase options.


SSTK expects usage to decrease during the fourth quarter of each calendar year due to the year-end holiday season, and to increase in the first quarter of each calendar year as many customers return to work.

SSTK's trajectory of rapid growth may have overshadowed these effects to date.

Also, a significant portion of revenue is derived from repeat customers who have purchased subscription plans. So SSTK's revenues tend to be smoother and less volatile than if SSTK had no subscription-based customers.


Jonathan Oringer, 66%

Insight Venture Partners, 25%


SSTK expects to net $54.2 million from its IPO.

Proceeds are allocated for general corporate purposes, including working capital and capital expenditures.

SSTK may also use a portion of the net proceeds to repay all or a portion of the term loan facility that entered into on September 21, 2012 to fund working capital needs following the final cash distribution to the members of Shutterstock Images LLC prior to the Reorganization.

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. I have no business relationship with any company whose stock is mentioned in this article.