Is Shutterstock in Serious Trouble? On August 5th the SSTK stock price closed at $50.75. On August 6th the company announced its
second quarter results and missed the projected revenue for the quarter by 1.5%. On August 7th the stock closed at $33.65, a 34% decline in 2 days.
NO! The company is not in trouble. Rather, financial analysts that closely watch Shutterstock are finally waking up to the realities of the stock photo business.
A few months ago most of the financial analysts were projecting the potential for the share price to grow to the $70 to $100 range. On November 12, 2014 the share price closed at $83.06 and the total projected value of the company was $2.975 billion. On April 15, 2015, after Shutterstock reported its Q1 2015 results, shares traded at $73.34 valuing the company at $2.3 billion. At last Friday’s close the company that has already grossed $201.9 million this year and is expected to gross $425 to $430 million in all of 2015 was valued at about $1.2 billion.
The real value hasn’t dropped. Now, it is just more realistic than it was in April, or based on the opinions of most analysts, just last week.
On July 14th
Morgan Stanley initiated coverage on the stock with an “underweight” rating and a price target of $40. They had surveyed Shutterstock users and concluded that 55% would switch to Adobe Stock if the Creative Cloud made importing images easier. No information was given as to how many users actually responded to this survey.
(I am very suspicious of the 55% number and suspect it is about as accurate as surveys that say Donald Trump will be the next President. Only time will tell how many buyers will really be willing to switch.)
Over the weekend Cantor Fitzgerald lowered its price objective from $100 to $72, Jefferies Group lowered from $90 to $39 and RBC Capital lowered from $86 to $38.
Until recently analysts believed that:
- Shutterstock annual growth of about 40% per year for the last three years would go on at near that rate forever. Now it looks like it will be in the range of 30% in 2015 and likely to be less in 2016.
- There are a host of unreached commercial customers who need images and are just waiting to learn about Shutterstock.
- Shutterstock has no serious competition
Investors failed to recognize:
- That the potential market for stock imagery is nowhere near the $4 billion Shutterstock projected when the company went public.
- That the overall market is growing very little in terms of revenue on an annual basis.
- That the stock had been seriously overpriced based on a false understanding of market size.
- That growth in subscription downloads is not an accurate measure of actual usage. (Many images downloaded through subscriptions are not used in a final product.)
- The degree to which Shutterstock’s growth resulted from taking market share from other players, rather than opening up new markets.
- The potential for Adobe to take market share.
- How difficult it will be to continue taking market share going forward.
- The degree to which Shutterstock’s growth was due to strategic errors by its competition, particularly Getty Images.
There are threats to Shutterstock’s long term growth, but it seems more likely that growth will simply slow rather than there being an overall revenue decline as has occurred with Getty Images.
- The biggest threat is Adobe which will likely take some market share, but the loss is not likely to be sudden and will take some time to develop.
- Videoblocks may present some threat to Shutterstock’s growth in video sales.
- Growing the Enterprise segment of their business may get harder. Traditional sellers have reluctantly matched prices and become more price competitive. And given the more than 20,000 Enterprise customers Shutterstock is already serving, there are fewer and fewer high end customer left to steal from the traditional side of the business.