Shutterstock has reported Q2 2016 revenue of $124.4 million up from $104.4 million compared to Q2 2015. The growth is due mainly to new customers and increased activity by enterprise clients.
The average price per download during the quarter was $2.81, down from $2.85 in Q2 2015 and from $2.77 in Q1 2016. There were 43.4 million paid downloads in the quarter and 92.1 million still images and illustrations in the collection at the end of the quarter. In addition there were over 5 million video clips in the library.
Royalties paid to contributors during the quarter were about 29% of total revenue, or approximately $36 million. Currently, there are over 130,000 contributors meaning that the average contributor earned $277 during the quarter.
Marketing expenses were about 24% of total revenue or approximately $30 million. CFO Steven Berns said, “As expected, and as we highlighted on our last call, total marketing expense as a percentage of revenue during the second quarter returned to similar levels as in 2015 as we grow our traditional businesses and capitalize on newer opportunities such as music and editorial.”
Shutterstock also reported that 1.6 million customers have contributed to revenue in the past 12 months. This would mean that the average customer spent a total of about $290 during the last 4 quarters.
Chart
The chart below shows some of the trends in downloads, images in the collection and revenue growth since Q1 2014. Video downloads are not included in this calculation. (For earlier data going back to Q3 2011 see
here. The "Rev/Image" row is "the average revenue per image in the collection." For this figure I divide total revenue by still images in the collection at the end of the quarter.
| |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
| |
2014 |
2014 |
2014 |
2014 |
2015 |
2015 |
2015 |
2015 |
2016 |
2016 |
| Downloads (millions) |
29.7 |
31.5 |
31.2 |
33.5 |
33.4 |
35.9 |
38.1 |
39.8 |
41.2 |
43.4 |
| Rev.per DL |
$2.45 |
$2.52 |
$2.65 |
$2.68 |
$2.87 |
$2.85 |
$2.76 |
$2.86 |
$2.77 |
$2.81 |
| Images in collection |
35.4 |
38.8 |
42.7 |
46.8 |
51.6 |
57.2 |
63.7 |
71.4 |
81.0 |
92.1 |
| |
|
|
|
|
|
|
|
|
|
|
| Total Rev. (millions) |
$72.8 |
$80.2 |
$83.7 |
$91.2 |
$97.5 |
$104.4 |
$107.3 |
$115.9 |
$116.7 |
$124.4 |
| |
|
|
|
|
|
|
|
|
|
|
| Rev/Image |
$2.06 |
$2.07 |
$1.96 |
$1.95 |
$1.89 |
$1.83 |
$1.68 |
$1.62 |
$1.44 |
$1.34 |
| % Image Lic |
80% |
84% |
81% |
72% |
65% |
63% |
60% |
56% |
51% |
47% |
The "% Image Lic” row measures the odds that a single image in the collection will have been licensed one time within the quarter. To arrive at this number, we divide the total downloads by the number of images in the collection at the end of the quarter. This number is significant because it shows that new images are being added to the collection at a much faster rate than image downloads are increasing. For example, if a contributor had 1000 images in the collection in Q1 2014 on average he would have had 800 downloads in that quarter. The same 1000 images in the collection in Q2 2016 would have only resulted in 470 downloads.
Another way to look at the percent of images licensed is to consider the average income per-image-in-the-collection. The following chart shows the trends since 2011. We divided the gross income generated in the year by the total images in the collection at the end of the year. This gives us the “Earned Revenue Per Image.” Then we multiply that by the 0.29 (the royalty share paid out to contributors to determine the average “Contributor Royalty” per-image-in-the-collection for the year.
| |
Gross |
Images In |
Earned |
Contributor |
| |
Revenue |
Collection |
Revenue |
Royalty |
| |
|
|
Per Image |
|
| 2011 |
$120,230,000 |
17,400,000 |
$6.91 |
$2.00 |
| 2012 |
$169,200,000 |
23,300,000 |
$7.26 |
$2.11 |
| 2013 |
$235,500,000 |
34,500,000 |
$6.83 |
$1.98 |
| 2014 |
$328,000,000 |
46,100,000 |
$7.11 |
$2.06 |
| 2015 |
$425,100,000 |
71,400,000 |
$5.95 |
$1.73 |
| 1H 2016 |
$241,100,000 |
92,100,000 |
$2.62 |
$0.76 |
| |
|
|
|
|
| Estimate for |
|
|
|
|
| all 2016 |
$503,000,000 |
110,000,000 |
$4.57 |
$1.33 |
It is worth considering that based on the estimated 2016 numbers the average contributor would need 22,556 images in the collection to earn $30,000. Probably fewer than 200 of Shutterstock’s contributors have that many images in the collection. And, if they have that many images, it is important to consider what kind of production costs the contributor might have had in producing that many images.
Another factor that may add to the confusion is that the images in the Bigstockphoto collection are not included in the 92.1 million images reported by Shutterstock. However, the Bigstock revenue is included in the $124.4 million. Bigstock’s website says they have over 38 million images in their collection. Thus, the combined collections that generate $124.4 million in revenue have over 130 million images. We assume Bigstock’s sales per image in the collection are much lower than Shutterstock’s but we have no way to determine what that number might be.
Estimated Breakdown Of Revenue
When asked about the breakdown of revenue CFO Berns said Enterprise is close to 30%, Subscription represent about one-third and Image-On-Demand represents between 35% and 40% of total revenue. Video and music represent well over 10% on a combined basis, but a significant portion of those sales (if not all) are to Enterprise customers.
Currently, the company has over 32,000 Enterprise customers up from over 24,000 in Q4 2015. The company has had an 80% growth in Enterprise customers since Q2 2015. If all 32,000 purchased something during Q2 1016 the average customer would have spent about $1,100 during the quarter, or maybe $4,400 per year. We know that a few customers spend more that $100,000 a year so many of the Enterprise customers are spending much less than $4,000 a year.
Total Enterprise revenue would have been around $35 million, and about $12 million of that would have been for Video and Music. Thus, about $23 million of Enterprise sales were probably for single images, subscriptions and other services provided to Enterprise customers.
The revenue generated by Bigstockphoto is included in the $124.4 million but the number of images downloaded from BigStock are not included in the Shutterstock figure for “Images in the Collection.” BigStock have over 38 million images in its collection which should be added to the 92.1 million images to get an accurate picture of the number of images that generated the $124.4 million in revenue.
No information was provided for the Editoral segment of the business, but my estimate based on the figures reported for
Q4 2015, and contributors to the Rex collection, is a little over $2 million.
Collection from Enterprise customers has become somewhat of a problem. Enterprise customers are billed monthly after they download images, rather than purchasing credits or an upfront subscription before downloading. Berns said, “We have substantially increased the level of effort to collect these receivables, and to make sure that we have a focus on rapid collection of our receivables, specifically from enterprise customers.” They have set up a reserve to deal with receivables on the books.
Financial Outlook
Revenue for all of 2016 is still expected to be between
$495 and
$510 million. This will result in between 17% and 20% growth over 2015 revenue. It is worth noting that while revenue is continuing to grow the rate of growth is slowing.
| Year |
Gross |
Annual |
Percent |
| |
Revenue |
Rev. Growth |
Rev. Growth |
| 2011 |
$120.3 |
|
|
| 2012 |
$169.2 |
$48.9 |
41% |
| 2013 |
$235.5 |
$66.3 |
40% |
| 2014 |
$327.9 |
$92.5 |
39% |
| 2015 |
$425.1 |
$97.2 |
30% |
| 2016 Estimate |
$500.0 |
$74.9 |
18% |
Income from operations is expected to be between $43 - $51 million (5% - 24% growth).
Location Of Customers
Bern said, “Currently 40% of our revenues are from customers in North America, 33% are from customers in Europe, and 27% from Asia/Pacific.” This breakdown doesn’t allocate any revenue for South America, Africa and the Middle East.”
Previously they had indicated that 70% of revenue comes from outside the U.S. If this still holds true then about 10% of revenue comes from Canada and Mexico. They have also provided figures in the past that indicated that as much as 9% of revenue came from South America.
When asked later about the Asia/Pacific discrepancy the press office said, "27% was
primarily Asia Pacific".
Adjusted EBITDA
Adjusted EBITDA of $22.5 million increased $1.8 million or 9% as compared to the second quarter of 2015. Excluding the impact of foreign currency, Adjusted EBITDA growth was approximately 15% in the second quarter as compared to the second quarter of 2015. Adjusted EBITDA is defined as income from operations adjusted for depreciation, amortization, disposals, non-cash equity-based compensation and accelerated change in fair value of contingent consideration related to acquisitions.
Net Income
Net income available to common stockholders of $7.2 million, $0.20 per diluted share, for the second quarter increased $1.9 million as compared with $5.3 million, $0.15 per diluted share, in the second quarter a year ago primarily due to the improved operating performance, lower income tax expense and a decrease in non-cash equity based compensation expense.
Non-GAAP net income, which excludes the after-tax impact of non-cash equity-based compensation, amortization of acquisition-related intangible assets and changes in fair value of contingent consideration related to acquisitions was $12.7 million, $0.36 per diluted share, for the second quarter as compared to $11.2 million, $0.31 per diluted share, in the second quarter of 2015.
Stock Repurchase Program
During the second quarter of 2016, the Company repurchased approximately 399,000 shares of its stock, pursuant to its existing $100 million stock repurchase program, at an average price per share of $40.73 for a total of $16.3 million. Through June 30, 2016, the Company has repurchased 1.7 million shares of its stock for a total of $59.7 million under the stock repurchase program. The stock repurchase program, which commenced in November 2015, authorizes management to purchase shares from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued at any time.
Liquidity
The Company's cash, cash equivalents and short term investments totaled $265.9 million at June 30, 2016 as compared with $288.4 million at December 31, 2015 primarily reflecting the $41.6 million of cash generated from operations, which was more than offset by capital expenditures and content acquisitions of $17.8 million and by cash used to repurchase shares of approximately $44.5 million.
Free cash flow was $9.3 million for the second quarter, a decrease of $4.8 million from the second quarter of 2015, as the improved operating performance was more than offset by increased spending on capital expenditures and content acquisitions as well as working capital fluctuations. Free cash flow is defined as cash provided by operating activities adjusted for capital expenditures and content acquisition.