The world has gone digital, and Shutterstock (SSTK -0.90%) aims to deliver the digital images and videos that clients increasingly need in order to relate to their own customers. Yet the industry has become increasingly competitive, and coming into Friday's third-quarter financial report, Shutterstock investors wanted to see evidence that the company could continue to grow at the fastest rate possible. Shutterstock's results fell short of what those watching the stock had hoped to see with respect to revenue, and even strong bottom-line performance wasn't enough to keep shareholders happy. Let's take a closer look at how Shutterstock did and why investors weren't pleased with it.


Image source: Shutterstock.

Shutterstock loses a bit of its flash

Shutterstock's third-quarter financials were quite solid, even if they weren't as good as some had hoped. Revenue jumped 15% to $123.1 million, and that was significantly less than the 19% growth that the consensus sales forecast had incorporated. On the bottom line, however, adjusted net income jumped 40% to $14.3 million, and that produced adjusted earnings of $0.40 per share. That was well above the $0.32 per share that most investors were expecting.

Taking a closer look at Shutterstock's results, growth in some of the company's key operational metrics looked a bit less robust than investors had seen in previous quarters. Paid downloads were up just 8% to 41.2 million, showing growth that has slowed considerably since the beginning of the year. Revenue per download was fairly strong, climbing $0.15 to $2.91 per download, and that helped power Shutterstock's top line higher. The company's image collection climbed above the 100 million mark, hitting 102.7 million images by the end of the quarter.

Several things contributed to the performance that Shutterstock had. New customers helped to drive the growth in paid downloads, but Shutterstock also said that it was successful in expanding its sales related to enterprise customers, which generated much of the increase in revenue per download. Foreign currency impacts have abated recently and only cost the company about 2 percentage points of potential revenue growth.

From a cost standpoint, greater volume of downloads led to higher royalty costs, and Shutterstock did cite an increase in spending on marketing to support its business. However, lower tax expenses helped to boost the company's net income.

Shutterstock CEO Jon Oringer was happy with how the company did. "This was a solid quarter for Shutterstock," Oringer said, "as we continue to expand the market for high quality digital content. Over 160,000 contributors added more than 10 million images and 500,000 video clips to our robust library in the third quarter." In addition, the CEO pointed to music and editorial capabilities that have grown recently, giving Shutterstock even more opportunities for success in the future.

What's ahead for Shutterstock?

Shutterstock is looking forward to further initiatives to drive growth. As Oringer said, "We also continue to dedicate considerable time and resources ensuring that our platform can handle an increasingly diverse array of content, enhancing our product offering and attracting new customers, including an expanding number of international and enterprise clients."

Yet it was Shutterstock's guidance that seemed to drive investor discontent. The company said that it expects revenue of $495 million to $510 million, which hasn't changed at all over the past couple of quarters. Similarly, guidance for adjusted operating profit growth of 12% to 18% has remained the same for nine months. For a company trying to show its ability to grow more aggressively, the failure to boost guidance seemed to be a big negative for investors.

Perhaps as a result, Shutterstock investors were very negative about the results, with shares falling 11% in the trading session following the announcement. Even despite what appears to be a fundamentally solid business, Shutterstock will have to work harder to convince investors that the opportunity it has for growth is real and that it will be able to withstand competitive pressures going forward.