Shutterstock has reported Q3 2019 revenue of
$159.1 million up 5% compared to Q3 2018 and down slightly from $161.7 million the previous quarter. Revenue per download averaged
$3.40 per image, which was the same in Q3 2018.
Total image and video downloads for Q3 were
46.3 million, up from 43.9 million a year earlier, and down from 46.6 million in Q2 2019. At the end of the quarter Shutterstock had over 297 million images and 16 million video clips, or
313 million pieces of content in its collection.
E-commerce revenue of $96.2 million represented
60% of total revenue and was about the same as the previous quarter. It was up 8% compared to Q3 2018. Enterprise revenue remained relatively flat, at $62.8 million compared to a year earlier and represented 40% of total revenue.
At they end of the Q1 2018 the company said it had 750,000 photographers, videographers, musicians, artists and designers who had contributed to the Shutterstock collection. In a little over a year-and-a-half they have added over 250,000 contributors and now claim to have over
1,000,000 contributors.
About 26% of revenue or
$41,366,000 was paid out to contributors during the quarter. This would mean that on average contributor earned about
$41.37 during the quarter or less than $170 annually. Since a handful of contributors earn significantly more the vast majority earn little or nothing for their efforts.
The average contributor would have 313 images in the collection. But we know that somewhere between 2,000 and 3,000 contributors have over 10,000 images in the collection and at least 2 contributor groups have contributed over one million images each. Thus, the vast majority of contributors have fewer than 300 images in the collection. This probably means that a high percentage of contributors go through the process of submitting a few images, discover that there is not much compensation for their efforts and don’t bother to submit more.
It is interesting to consider how much Shutterstock Custom contributes to the company’s overall revenue. Presumably, the Custom images supplied to customers are not included as part of the downloads. If there are 46.3 million downloads and the average revenue per download is $3.40 that accounts for a total of
$157.42 million of the quarter’s revenue leaving only about
$1.7 million in additional revenue for Custom. If is unclear if any other revenue source is also included in this $1.7 million revenue figure.
Another revenue source to consider is Offset. Offset images are licensed at much higher prices. The Offset images must be included in the total downloads figure because the $1.7 is not large enough to cover all Offset sales. We believe that Offset images generate about $15 million annually of
Shutterstock’s total revenue, but an exact figure has never been
revealed. The average price per download would be raised substantially as a result of the licensing of a relatively few Offset images that are licensed at fees which range from $212 to $499 per download.
Shutterstock reports that they have
1.9 million customers and based on the most recent reports about
40,000 Enterprise accounts. We know that in many cases multiple art directors working for a particular company have access to the same Enterprise account. It is unclear whether the 1.9 million customers includes multiple individuals from each Enterprise account, or if there are 1,860,000 E-commerce customers separate from the Enterprise customers.
If there are about 1,860,000 E-commerce customers the average customer spent about
$52.15 during the quarter. There is no indication that the number of customers has grown significantly in the last 12 months.
Of the Enterprise accounts the average quarterly spend would be about
$1,570, or $6,280 annually. However, we are told that several large Enterprise customers spend over one hundred thousand dollars annually so a significant percentage spend much less than the $6,280 figure.
Sales and marketing expenses in the quarter were about 28% of total revenue, or about
$44,548,000. These costs are roughly split between the amount spent to operate the Enterprise sales operation and direct marketing to bring in E-commerce customers. Most of the E-commerce spend is in online advertising. Since about half of the sales and marketing costs, or $22 million are spent on servicing Enterprise customers that means that roughly 35% of Enterprise revenue is spent on marketing.
Product development costs were about 8% of total revenue. General and Administrative expenses represented about 15% of total revenue. The effective tax rate is about 3.3% of gross revenue.
Future Guidance
The estimate of revenue for all of 2019 is expected to be between
$645 and $670 million and remains unchanged from the previous quarter. Adjusted EBITDA is expected to be between $93 and $107 million. Income from operations is expected to be between $18 and $32 million. Non-cash equity-based compensation expense will be approximately $25 million and Capital expenditures, including capitalized labor, should be approximately $32 million for the year. The effective tax rate should be in the teens.
During the conference call CEO Jon Oringer said, “Shutterstock has … capitalized on the world around us that has become increasingly visual with businesses and people communicating more effectively using video, images and music. We know how to and have created innovative solutions to meet the changing needs of our customers. Our cloud based platform which we continuously enhance is designed to provide our customers the ability to seamlessly get the content they need to be successful in their creative projects and business initiatives.
“As we work on our strategic planning for 2020 and beyond we are confident that we have our finger on the pulse of the ever changing trends that help businesses be more successful in the way that they communicate and work. We are really passionate about our mission to provide value for our users, prioritizing workflow and collaboration of all the Shutterstock offering on the creative platform and arranging solutions that best suit the expanding needs of businesses, teams, creatives and marketers around the world.”
Chart
The chart below shows some of the trends in downloads, images in the collection and revenue growth since Q4 2016. Video downloads are included in this calculation. (For earlier data going back to Q4 2014 see
here.) The “Rev Per DL” is the “Downloads” times the “Avg Rev per DL.” This differs slightly from “Total Rev.” because a small percentage of revenue comes from other activities not associated with stock content downloads. The The "Rev/Image" row is "the average revenue per image in the collection." For this figure, I divide total revenue by the sum of still images.
| |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
| |
2017 |
2017 |
2017 |
2018 |
2018 |
2018 |
2018 |
2019 |
2019 |
2019 |
| Downloads (millions) |
42.7 |
41.9 |
43.9 |
43.7 |
45.2 |
43.9 |
46.8 |
47.2 |
46.6 |
46.3 |
| Avg Rev per DL |
$3.05 |
$3.23 |
$3.33 |
$3.40 |
$3.41 |
$3.40 |
$3.40 |
$3.42 |
$3.44 |
$3.40 |
| Images in collection |
145 |
156 |
1704 |
187 |
204 |
221 |
242 |
260 |
280 |
297 |
| Video in collection |
8 |
8 |
9 |
10 |
11 |
12 |
13 |
14 |
15 |
16 |
| |
|
|
|
|
|
|
|
|
|
|
| Total Rev. (millions) |
$134.0 |
$141.1 |
$151.8 |
$153 |
$156.6 |
$151.6 |
$162.1 |
$163.3 |
$161.7 |
$159.1 |
| Rev. Per DL (millions) |
$130.24 |
$135.34 |
$146.19 |
$148.58 |
$154.13 |
$149.26 |
$159.1 |
$161.42 |
$160.30 |
$157.42 |
| |
|
|
|
|
|
|
|
|
|
|
| Rev/Image |
$0.93 |
$0.90 |
$0.89 |
$0.81 |
$0.73 |
$0.65 |
$0.62 |
$0.59 |
$0.54 |
$0.51 |
| % Image Lic |
30% |
26% |
25% |
23% |
21% |
18% |
18% |
17% |
15% |
14.8% |
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, I 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 at a much faster rate than image downloads are increasing. For example, if a contributor had 1,000 images in the collection in Q2 2017 on average he would have had 300 downloads in the quarter. In Q3 2019 a collection with 1,000 image would have only had 148 downloads. Back in Q4 2013 a contributor with a 1,000 image collection could have expected to see 860 downloads in a quarter.
Income from Operations
Income from operations was $3.2 million, a decrease of $3.5 million, or 52%, compared to the third quarter of 2018, primarily as a result of an increase in operating expenses of $11.0 million, or 8%, partially offset by an increase in revenue of $7.5 million. The increase in operating expenses is attributable to sales and marketing expenses, which is due to higher marketing costs, and an increase in general and administrative expenses. General and administrative expenses have increased due to compensation and technology related costs.
Net Income
Net income of $4.9 million, or $0.14 per diluted share, decreased $2.5 million for the third quarter of 2019 as compared with $7.4 million, or $0.21 per diluted share, for the third quarter of 2018, primarily driven by the reduction in income from operations partially offset by an increase in the income tax benefit for the third quarter of 2019 attributable to discrete income tax items.
Adjusted EBITDA
Adjusted EBITDA of $21.6 million for the third quarter of 2019 decreased $3.5 million, or 14%, as compared to the third quarter of 2018, driven primarily by the reduction in income from operations. We define adjusted EBITDA as net income adjusted for foreign currency transaction gains and losses, expenses related to long-term incentives and contingent consideration related to acquisitions, impairment charge related to a long-term investment asset, interest income and expense, income taxes, depreciation, amortization, non-cash equity-based compensation and the gain on the sale of Webdam.
Adjusted Net Income
Adjusted net income was $10.3 million, or $0.29 per diluted share, for the third quarter of 2019 as compared to $13.4 million, or $0.38 per diluted share, in the third quarter of 2018, a decrease of $3.1 million, or 23%. We define adjusted net income as net income excluding the impact of non-cash equity-based compensation, the amortization of acquisition-related intangible assets, expenses related to long-term incentives and contingent consideration related to acquisitions, the gain on the Sale of Webdam, impairment charge related to a long-term investment asset and the estimated tax impact of such adjustments.
Liquidity
Our cash and cash equivalents increased by $54.5 million to $285.4 million at September 30, 2019, as compared with $230.9 million at December 31, 2018. This increase was driven by $77.0 million of net cash provided by our operating activities, $4.6 million of proceeds from the exercise of stock options and $2.5 million received from the release of escrowed funds related to the sale of Webdam, which was sold in the first quarter of 2018 (the "Sale of Webdam"), partially offset by $19.5 million of capital expenditures and $6.4 million of cash used in settlement of employee taxes related to the vesting of restricted stock units.
We paid net cash taxes of $1.5 million during the nine months ended September 30, 2019, compared to $0.4 million paid during the first nine months of 2018.
Free cash flow was $55.6 million for 2019, an increase of $19.4 million from 2018. This change was primarily driven by lower capital expenditures, in addition to higher net cash provided by operations. Free cash flow is defined as cash provided by operating activities adjusted for capital expenditures and content acquisition.