Reality Vs. Buzzwords at Shutterstock, Down 31%

Some fabulous companies have seen their stocks pounded by the selloff of technology, biotech and other momentum shares in recent weeks, and Shutterstock (SSTK) is one of them. The company is growing rapidly, solidly profitable and has built what it likely a durable business model with its online marketplace for photographs, video and other images.

Does that mean the selloff makes no sense? Hardly, for while Shutterstock is a dandy business, it is a relatively little one and its valuation, even after a 31% plunge, suggests that investors bought into the notion of spectacular and sustained growth not often seen as a company matures. The Shutterstock PE ratio has fallen to about 93.

SSTK PE Ratio (TTM) Chart

SSTK PE Ratio (TTM) data by YCharts

The $2.5 billion market cap is supported by reported 2013 revenue of just $235 million and net income of $26 million. Great business, questionable multiple.

Shutterstock licenses photos and such from some 50,000 individuals, many of them all but amateurs who receive as little as 25 cents per use of an image. Some 900,000 mostly small businesses needing advertising and marketing images pay on average $2.35 a download to use them. Shutterstock sold 100 million downloads last year. The company has more than 32 million images in its library.

It’s mostly automated, so Shutterstock has just 345 employees plus nearly 100 contract workers who review images as they come in.

It’s the brainchild of Jonathan Oringer, Shutterstock’s founder and CEO, whose stock in the company is currently valued at more than $1 billion. A nemesis of professional photographers, Oringer recently told Crain’s New York that he’d noticed before starting the company in 2003 that stock, or canned, photos were pricey:

"Cameras were dropping in price, and I decided to go out and take stock photos and see what it was like," Oringer said. "It turned out not to be that hard." He took 30,000 of them, and thus was Shutterstock’s library born.

Now, of course, everyone with a smart phone is a photographer, posting on social media sites and, should a celebrity or a natural disaster wander into the frame, possessing valuable images (just ask Lindsay Lohan). Shutterstock nevertheless says it’s picky:

“Less than 20% of contributor applicants who applied in 2013 were approved as contributors to, and less than 70% of our content uploaded by approved contributors in 2013 satisfied our rigorous acceptance requirements.”

Oringer and his crew excel at employing some popular buzzwords to explain Shutterstock’s growth potential.

First off, there are a lot of big numbers to absorb: pre-shot, or canned, images represent a $6 billion market by 2016, according to a study Shutterstock commissioned and paid for; the portion of that market handled online will grow 15-to-20% annually, again according to the commissioned study; pretty much all advertising requires images and that’s a $631 billion market as of 2011; small business advertising, Shutterstock’s specialty, is growing rapidly and will reach $16.6 billion by 2015.

So, we’ve got big numbers covered. Oringer adds in the “network effect” Shutterstock enjoys; as more images are uploaded to its site, it’s a more attractive place to buy pictures, and that attracts more images. (A version of this virtuous cycle can be read in many tech company 10-Ks.) And Shutterstock is “disruptive,” everyone’s favorite word, using its online marketplace to edge aside the old world of individual and pricier photo services selling stock images.

Of course, one supposes that if Oringer can disrupt the likes of Getty Images, Corbis, Reuters, Associated Press and others, Shutterstock can be disrupted, too. Yahoo’s (YHOO) Flickr and Google’s (GOOG) Google Images may seem poorly-organized online dumpsters full of photos, but that doesn’t mean some smart new Oringer won’t come along and organize them.

Even if Shutterstock gets drilled, Oringer will be fine. He sold two million shares in a secondary offering last year priced at $60 a share.

All signs in the company’s financials are encouraging. Revenue grew 39% last year. Operating margins are widening. Revenue per download has risen. And Oringer is doing a lot of smart things to try to attract larger business customers. And he certainly isn’t shy about putting contributing photographers through the paces: they’re required to tag photos to make them searchable in the database, and the average image carries 35 tags. Unleash some financial advisor tools to learn more.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.



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