Q3 2024 Earnings Summary
- Shutterstock's Data business is significantly outperforming expectations, with revenues over $100 million in 2024, up from an initial visibility of $60 million. The company is experiencing recurring demand from existing customers renewing licenses and purchasing additional data, as well as new opportunities in AI and industry-specific applications, enhancing the business's durability and visibility.
- Envato acquisition is delivering beyond expectations, with improvements in customer experience and rebranding efforts driving strong growth in new subscriptions. Management is more bullish on Envato's growth prospects now than at acquisition, suggesting it could contribute significantly to future revenue growth.
- Integration of generative AI tools is driving incremental growth in the Content business, with subscriptions to the AI product growing every month, and existing customers increasing their stock content usage alongside generative AI. Generative AI is additive to the core business, attracting new customers and expanding revenue opportunities.
- The core content business, excluding Envato, continues to decline with revenues decreasing by 7% year-over-year, following previous declines of 9% and 10%. Management is unable to provide a clear timeline for a return to positive growth, stating, "I don't know what day we cross over."
- The Data Distribution and Services segment is characterized by limited visibility and lumpiness, making it difficult to forecast future revenues. The CFO mentioned, "This is a business that's lumpy. This is a business that's characterized by limited visibility. And quite frankly, it makes it tough for us to forecast."
- The CFO, Jarrod Yahes, is leaving the company, which may create uncertainty in financial leadership during a critical time when the company is facing challenges in its core business. An analyst expressed, "Jarrod, sad to see you go. I appreciate all the help over the years. The best of luck in the new role."
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2024 | $927M to $936M with 6% to 7% growth | $935M to $940M with 7% to 7.5% growth | raised |
Adjusted Net Income per Diluted Share | FY 2024 | $4.18 to $4.32 per share | $4.22 to $4.31 per share | no change |
Adjusted EBITDA | FY 2024 | $245M to $248M | $247M to $250M | raised |
Adjusted EBITDA Margin | Q4 2024 | no prior guidance | 24% to 25% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
DDS | Q1: 90% YoY growth and acknowledgment of deal “lumpiness” with an increasing recurring base. Q2: Reported $50M revenue with 129% YoY growth and noted volatility in deal structures. | Q3: Achieved $47M revenue with 40% year-to-date growth; noted as “lumpy” with limited visibility but buoyed by recurring demand. | Recurring; stable growth continues while variability remains a key challenge. |
Envato Acquisition | Q1: Expected to contribute 20% of revenues and strategically fill product gaps, enhancing content offerings. Q2: Projected to add $75M to revenues with a positive impact on subscription mix and overall content metrics. | Q3: Delivered $37.6M in content revenue, outperforming expectations with smooth integration and strong strategic alignment. | Recurring; integration performance and revenue contribution are improving. |
Core Content Business | Q1: Faced a 10% decline but saw positive indicators from improved customer acquisition (post free trial elimination). Q2: Experienced a 9% decline attributed to weak new acquisition, with gradual recovery seen through turnaround efforts. | Q3: Reported a 7% decline, with turnaround efforts like simplified pricing and reintroduction of smaller packs showing sequential improvement. | Recurring; turnaround challenges persist but improvement is evident. |
Generative AI Integration | Q1: Launched a generative AI subscription and initiated partnerships (including work with NVIDIA on 3D capabilities). Q2: Expanded generative AI offerings with the introduction of GenAI 3D capabilities and secured strategic partnerships (e.g., with NVIDIA and equity deals). | Q3: Focused on a packaged generative AI tool that drives synergy with stock content; optimism remains for expansions into generative video and 3D products. | Recurring; sustained innovation with consistently positive strategic momentum. |
Subscriber Acquisition Strategy | Q1: Eliminated the free trial, leading to an improvement in customer quality and engagement. Q2: Continued focus on free trial elimination, noting short-term declines but a beneficial long‐term shift toward more transactional, higher-value subscriptions. | Q3: Ongoing positive impact with sequential improvements in content revenue decline attributed to streamlined pricing and reintroduction of small subscription packs. | Recurring; the strategy shows steady progress and improved sentiment over time. |
Leadership Transition | No mention in Q1 and Q2. | Q3: Announced CFO departure (Jarrod Yahes) and named Rik Powell as the new CFO, signaling a change in financial leadership. | New; a leadership change that could impact future financial strategy and execution. |
Giphy Business | Q1: Acknowledged operating at a loss but highlighted rapid revenue growth and aggressive hiring, with expectations for sequential profit improvements. Q2: While not focusing on profitability per se, growth metrics like customer increases were noted (active paying customers rose from 5 to 65). | Q3: Did not explicitly raise profitability concerns; emphasis shifted to revenue growth, monetization potential, and a strategic TikTok partnership. | Recurring; sentiment shifts from initial loss concerns toward growth optimism and improved monetization strategies. |
Ethically Sourced AI/ML Content | Q1: Highlighted rising demand for ethically sourced AI/ML content driven by regulatory changes and positioning as a trusted data provider. Q2: Emphasized the importance of licensability and ethical standards in training AI models, underscoring a focus on high-integrity data practices. | Q3: Not explicitly mentioned but inferred through continued emphasis on high-quality, licensed data aimed at AI model training. | Recurring; remains a critical and strategic differentiator, though less explicitly discussed in Q3. |
-
Data Business Growth and Visibility
Q: What's the outlook for Data business growth and visibility?
A: We entered the year with about $60 million in visibility for our Data business, but we're going to finish with well over $100 million in revenue, significantly exceeding expectations. Looking forward, we're in a similar situation. The business is lumpy and has limited visibility, making forecasting tough. However, we're very pleased with land-and-expand opportunities from existing clients, which makes our business more durable and visible over the long term. -
Content Business Improvement
Q: When will the Content business return to positive growth?
A: While we can't say exactly when we'll cross over to positive growth, we're making significant progress. The level of decline is shrinking from minus 10% to minus 9%, then minus 7%, and we're predicting that Q4 will be better than that. Our core subscription product is gaining traction, and the combination of AI in our Content business is attracting both existing and new customers. -
GIPHY Growth and TikTok Deal
Q: What's the impact of GIPHY's performance and the TikTok deal on revenue?
A: When we acquired GIPHY, it had a run rate revenue of about $20 million. The Data Distribution and Services segment, which includes GIPHY, is growing 40% year-to-date. GIPHY is growing sequentially each quarter, and we expect that to continue. Regarding the TikTok deal, while we can't disclose specifics, we believe the increased GIF usage and higher engagement will enhance monetization, and we're very bullish on GIPHY's revenue opportunity. -
Envato's Strong Performance
Q: How is Envato's growth progressing since acquisition?
A: We're more bullish on Envato today than at the time of acquisition. Efforts on customer experience and rebranding are driving new subscriptions, and the business is delivering beyond our expectations. Envato is contributing positively, and we're excited about its growth and product-market fit. -
Generative AI in Content Business
Q: How is generative AI impacting the Content business?
A: We've been early adopters in generative AI, launching our tool in January 2023. Our generative AI subscription product is attracting both existing and new customers. Existing stock content customers are using the AI subscription and maintaining or increasing their stock content use. New customers seeking generative AI are engaging with our product and then purchasing stock content. Subscriptions for the AI product are growing every month, and it's additive to our business. -
Recurring Revenue from Data Deals
Q: Are Data deals one-time or recurring revenue?
A: We're seeing recurring demand from customers for incremental refresh data and additional services layered on top of our first-party data. As investments in generative AI expand, we believe this will drive ongoing demand. This recurring revenue contributes to Shutterstock being a durable business with exciting growth opportunities. -
Data Sales Force Expansion
Q: What's the status of the data sales force ramp-up?
A: We're steadily hiring strategic sellers for our data sales force, expanding globally with recent hires in Europe and Asia. We're also exploring additional distribution partners, such as venture capital firms recommending our data to portfolio companies, and traditional service providers referring clients. We're thrilled with the sales force build-out and potential distribution partnerships.