Shutterstock (SSTK)

Stock photography and footage provider Shutterstock (NYSE:SSTK) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 13.2% year on year to $242.6 million. Its non-GAAP profit of $1.03 per share was 1.4% below analysts’ consensus estimates.

Company Overview

Originally featuring a library that included many of founder Jon Oringer’s photos, Shutterstock (NYSE:SSTK) is now a digital platform where customers can license and use hundreds of millions of pieces of content.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Competitors offering visual content include Adobe (NYSE:ADBE), Getty Images (NYSE:GETY), and Alphabet (NASDAQ:GOOGL).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Shutterstock’s 6.9% annualized revenue growth over the last three years was tepid. This fell short of our benchmark for the consumer internet sector and is a rough starting point for our analysis.

This quarter, Shutterstock’s revenue grew by 13.2% year on year to $242.6 million but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 8.9% over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

Request Growth

As an online marketplace, Shutterstock generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, Shutterstock’s paid downloads, a key performance metric for the company, increased by 46.6% annually to 120.9 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q1, Shutterstock added 85.9 million paid downloads, leading to 245% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating request growth.

Revenue Per Request

Average revenue per request (ARPR) is a critical metric to track because it measures how much the company earns in transaction fees from each request. ARPR also gives us unique insights into a user’s average order size and Shutterstock’s take rate, or "cut", on each order.

Shutterstock’s ARPR growth has been mediocre over the last two years, averaging 4.6%. This isn’t great, but the increase in paid downloads is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Shutterstock tries boosting ARPR by taking a more aggressive approach to monetization, it’s unclear whether requests can continue growing at the current pace.

This quarter, Shutterstock’s ARPR clocked in at $2.01. It declined 59.6% year on year, worse than the change in its paid downloads.

For online marketplaces like Shutterstock, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.

Shutterstock’s unit economics are higher than the typical consumer internet business and signal that it has competitive products and services. As you can see below, it averaged a decent 58.2% gross margin over the last two years. Said differently, Shutterstock paid its providers $41.77 for every $100 in revenue.

This quarter, Shutterstock’s gross profit margin was 58.4%, in line with the same quarter last year. Zooming out, Shutterstock’s full-year margin has been trending down over the past 12 months, decreasing by 1.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Shutterstock grow from a combination of product virality, paid advertisement, and incentives.

Shutterstock does a decent job acquiring new users, spending 39.7% of its gross profit on sales and marketing expenses over the last year. This decent efficiency indicates relatively solid competitive positioning, giving Shutterstock the freedom to invest its resources into new growth initiatives.

Investors regularly analyze operating income to understand a company’s profitability. Similarly, EBITDA is a common profitability metric for consumer internet companies because it excludes various one-time or non-cash expenses, offering a better perspective of the business’s profit potential.

Shutterstock has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 26.2%.

Analyzing the trend in its profitability, Shutterstock’s EBITDA margin rose by 2.2 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q1, Shutterstock generated an EBITDA profit margin of 26.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Shutterstock’s EPS grew at a weak 4.6% compounded annual growth rate over the last three years, lower than its 6.9% annualized revenue growth. We can see the difference stemmed from higher interest expenses or taxes as the company actually grew its EBITDA margin and repurchased its shares during this time.

We can take a deeper look into Shutterstock’s earnings to better understand the drivers of its performance. While we mentioned earlier that Shutterstock’s EBITDA margin was flat this quarter, a three-year view shows its margin has declined by 1.4 percentage points. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Shutterstock reported EPS at $1.03, down from $1.13 in the same quarter last year. This print slightly missed analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Shutterstock has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.3%, subpar for a consumer internet business. The divergence from its good EBITDA margin stems from its capital-intensive business model, which requires Shutterstock to make large cash investments in working capital (i.e., stocking inventories) and capital expenditures (i.e., building new facilities).

Taking a step back, we can see that Shutterstock’s margin dropped by 21.2 percentage points over the last few years. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Shutterstock’s free cash flow clocked in at $14.44 million in Q1, equivalent to a 6% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

Shutterstock reported $112.2 million of cash and $298.7 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $254.5 million of EBITDA over the last 12 months, we view Shutterstock’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $9.46 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Shutterstock blew past analysts’ number of paid downloads expectations this quarter. We were also glad it expanded its number of requests. On the other hand, its revenue missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 1.7% to $16.75 immediately following the results.

Updated: May 22, 2025 at 10:19 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Shutterstock, you should also grasp the company’s longer-term business quality and valuation.

Shutterstock’s business quality ultimately falls short of our standards. To begin with, its revenue growth was uninspiring over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive EBITDA margins show it has a highly efficient business model, the downside is its disappointing EPS growth over the last three years shows it’s failed to produce meaningful profits for shareholders. On top of that, its cash profitability fell over the last three years.

Shutterstock’s EV/EBITDA ratio based on the next 12 months is 3.2x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $29.43 on the company (compared to the current share price of $18.55).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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