Image source: Getty Images.

Shutterstock (NYSE:SSTK) last week posted second-quarter earnings results that showed strong demand for its commercial imagery and music products. And while profitability declined thanks to a spike in expenses, the company still generated solid earnings gains.

Here's a look at how the headline numbers stacked up against the prior-year period:


Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)


$124 million

$104 million


Net income

$7.2 million

$5.3 million


Earnings per share




YOY = year over year. Data source: Shutterstock's financial filings.

What happened this quarter?

Revenue improved by 19%, marking a minor slowdown from the prior quarter's 20% gain. Strip out the effect of foreign currency swings, though, and sales rose by an even stronger 22%. Shutterstock's huge profit boost was powered by a drop in tax liabilities, but operating income ticked higher as well.

Key highlights of the quarter include:

  • The number of paid downloads rose 21% to pass 43 million.
  • Average spending per download declined slightly, dropping to $2.81 from $2.85.
  • Shutterstock boosted its image portfolio by 61% to over 92 million pictures and grew its video library by 69% to nearly 5 million clips.
  • Operating expenses rose at a faster pace than revenue, which led to a decline in profitably as operating margin fell to 8% of sales from 9% last year.
  • Cash on hand declined by $22 million due to a ramp-up in capital spending and content acquisition costs.
  • Shutterstock spent $16 million repurchasing shares, bringing its buyback spending to $45 million so far this year.

What management had to say

CEO Jon Oringer said executives were pleased with the results. "Shutterstock's strong second quarter growth once again demonstrates the power of the network model we have built and the sustained momentum we are generating across both sides of our marketplace," he said in a press release.

Image source: Shutterstock investor presentation.

Engagement was driven by investments in bulking up the content library and in improving the customer experience, Oringer explained. "The quality and breadth of our content library combined with an unparalleled search experience continues to attract a diverse customer base that today downloads over 5.5 images per second."

Management plans to continue feeding that virtuous cycle, Oringer said, by "expanding our content offerings and investing in innovative technology solutions to further build our customer base, increase overall engagement and deliver sustained financial growth."

Looking forward

Shutterstock's full-year sales outlook didn't change: Executives still see revenue coming in at roughly $500 million for 20% growth, year-over-year. Its spending targets, meanwhile, reflect a company that's very much in expansion mode. Oringer and his team expect operating costs to grow at a faster pace than revenue -- just as they did this quarter -- due to additional technology and content investments. The capital expenditure outlook jumped up to $32 million, as well, from the $25 million that Shutterstock forecast in early May.

These growing expenses will put negative pressure on operating margin and on free cash flow, yet the company is still likely to generate solid profits this year. Moreover, Shutterstock sees the spending as critical to building up user engagement.

Investors can judge the level of success by following the company's paid download growth pace, along with its average spending per download. There's a balancing act involved in maximizing one of these metrics in relation to the other, yet executives would prefer to see a slight uptick in average spending even as volume rises by at least 20% this year.

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