Overview

Shutterstock, Inc. (SSTK) delivered a strong first quarter, exceeding expectations and positioning the company to accelerate its path towards its long-term targets. The company reported revenue of $214.3 million and adjusted EBITDA of $56.0 million in Q1 2024, demonstrating the strength of its diversified business model.

Financials

The company's annual revenue reached $874.6 million in 2023, with net income of $110.3 million and operating cash flow of $140.6 million. Free cash flow for the year was $84.8 million, showcasing Shutterstock's ability to generate substantial cash flow to fund its growth initiatives. In the first quarter of 2024, Shutterstock's revenue declined slightly to $214.3 million, compared to $215.3 million in the same period last year. However, the company's data distribution and services (DDS) segment experienced a remarkable 90% year-over-year growth, now accounting for nearly 20% of total revenue. This rapid expansion in the DDS business helped offset the 10% decline in the company's core content business.

Business Overview

Content Business

Shutterstock's content business, which includes its image, footage, music, and 3D offerings, has faced some headwinds in recent quarters, with demand from smaller customers muted. However, the company is seeing encouraging signs, including a 4% year-over-year increase in new and win-back customer orders in Q1 2024. Additionally, the launch of a generative AI subscription product and progress in bringing 3D generative capabilities to market are expected to drive further growth in the content business.

Data Distribution and Services

The company's data distribution and services segment has been a standout performer, benefiting from the increasing demand for ethically sourced, licensable data sets for training AI and machine learning models. Shutterstock's unique position as a provider of high-quality, multimodal data has allowed it to capitalize on this trend, with the company's data customer base expanding rapidly.

Geographic Diversification

Geographically, Shutterstock's revenue remains well-diversified, with 49% of revenue coming from the United States, 26% from Europe, and the remaining 25% from the rest of the world. The company's long-lived tangible assets are also spread across North America (67%), Europe (22%), and the rest of the world (11%), demonstrating its global footprint.

Recent Developments

In addition to its strong organic performance, Shutterstock recently announced the acquisition of Envato, a leading provider of digital creative assets and templates. This strategic move is expected to have a meaningful impact on the company's revenue and EBITDA, adding approximately 20% and 15%, respectively, on a full-year basis. The Envato acquisition fills a critical gap in Shutterstock's product offering, providing a one-stop shop for diverse content that caters to the needs of creatives, freelancers, influencers, and small agencies. This acquisition also expands Shutterstock's reach into faster-growing audiences and further diversifies its revenue streams, with Envato's content mix including a significant portion of video, audio, graphics, and other non-image assets.

Outlook

Shutterstock's management team has also provided updated guidance for 2024, raising revenue growth expectations to 5.5% to 7% and adjusted EBITDA guidance to $245 million to $248 million. This guidance includes the anticipated contribution from the Envato acquisition, as well as the continued strong performance of the DDS segment and the expected turnaround in the content business.

Liquidity

The company's liquidity position remains strong, with $72 million in cash and cash equivalents as of March 31, 2024. Shutterstock has also secured a $375 million credit facility to fund the Envato acquisition, which is expected to close in the third quarter of 2024. The company's leverage ratio post-acquisition is expected to be a very low 0.7x net debt to pro forma combined adjusted EBITDA, providing ample financial flexibility to support future growth initiatives and shareholder returns.

Conclusion

Shutterstock's strategic initiatives, including the Envato acquisition, the expansion of its DDS business, and the turnaround in its content segment, position the company well to achieve its long-term targets of $1.2 billion in revenue and $350 million in EBITDA by 2027. The company's diversified business model, strong cash flow generation, and prudent capital allocation have laid the foundation for continued success in the years ahead.