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    Shutterstock Inc (SSTK)

    Q2 2024 Earnings Summary

    Reported on Feb 25, 2025 (Before Market Open)
    Pre-Earnings Price$37.97Last close (Aug 5, 2024)
    Post-Earnings Price$36.40Open (Aug 6, 2024)
    Price Change
    $-1.57(-4.13%)

    What went well

    • Exceptional year-to-date performance in the Data, Distribution, and Services (DDS) business, with continued success expected in the back half of the year, indicating strong growth potential and contributing to achieving the company's 2027 long-term targets. The business is healthy and strong, with a growing base of TAL revenue and bookings backlog.
    • Strategic leadership in Generative AI, such as the 3D Generative AI product with NVIDIA, positions Shutterstock at the forefront of innovative technology, enabling them to supercharge customer workflows in areas like immersive experiences, gaming, and retail. The company is proud to be among the first with this kind of product in the marketplace.
    • The company's commitment to simplifying product offerings and addressing customer needs, including transitioning to subscription-based models and introducing unlimited products (with Envato fitting nicely into this opportunity), shows a focused effort to return the Content business to growth. Despite challenges, they are confident that the content business gets back to growth.

    What went wrong

    • Decline in Content Business and Slow Recovery: Shutterstock's Content revenue declined by 9% year-over-year to $170 million in the second quarter. Management acknowledges that "getting back to year-over-year growth is taking longer than we had expected," indicating prolonged challenges in the Content segment.
    • Subscriber Decline and Shift in Customer Behavior: The elimination of the free trial for subscriptions has led to a reduction in new customer acquisition and existing subscribers shifting towards transactional products. Management notes that this change is "exacerbating some of the subscriber decline," potentially impacting long-term revenue from recurring subscriptions.
    • Anticipated Step-down in Data, Distribution, and Services Revenue Growth: Despite exceptional first-half performance, management expects the Data, Distribution, and Services business to "step down by less than $10 million" in the second half. This indicates that the exceptional growth may not be sustained, potentially affecting overall revenue growth.

    Q&A Summary

    1. Content Business Decline
      Q: What's causing the content business slowdown, and solutions?
      A: Paul Hennessy explained that while the content business is showing sequential improvement, it's not recovering at the desired pace. They are simplifying product offerings, such as moving PremiumBeat to subscription-based models and simplifying PONV plans. They see an opportunity to offer more unlimited products, with Envato fitting nicely into this strategy.

    2. DDS Business Outlook
      Q: How is the DDS business performing and H2 expectations?
      A: Jarrod Yahes stated that the DDS business has had exceptional year-to-date performance. They expect continued success in the second half, with a slight step-down of less than $10 million, but emphasize the business remains healthy and strong.

    3. 3D Generative AI Product
      Q: Discuss use cases and prospects for 3D Gen AI product
      A: Paul Hennessy noted it's early days for the 3D Gen AI product, with beta customers starting in September. The technology enables rapid creation of 3D models, driving efficiency in areas like immersive experiences, gaming, and retail.

    4. Licensing Deals Amid Regulation
      Q: How are you positioned in AI licensing as regulations evolve?
      A: Paul Hennessy emphasized that Shutterstock is central in providing licensable AI training data, which is critical amid increasing regulation. They have partnerships with major companies focused on ethical and sustainable generative AI models.

    5. Sales and Marketing Expenses
      Q: What caused Q2 S&M expense drop, and outlook?
      A: Jarrod Yahes explained that the Q2 decrease was due to the end of a large branding campaign. Sales and marketing expenses are expected to remain around 24% of revenue, with increased investment in areas like DDS, GIPHY, and Studios.

    6. Subscriber Base Trends
      Q: What's driving the decline in existing subscribers?
      A: Paul Hennessy mentioned churn remains constant at about 80% net revenue retention. The subscriber decline is due to weaker new customer acquisition and a shift from subscription products after eliminating the free trial, leading customers to transactional products.

    7. Barter Transactions Size
      Q: What was the size of barter transactions this quarter?
      A: Paul Hennessy stated they received approximately $12 million in revenue in the form of equity in Q2.

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