Shutterstock (SSTK 0.29%) has an immense opportunity for growth in front of it. With its vast collection of imagery, videos, and other digital content, Shutterstock offers clients the ability to keep up with ever-improving web technology and express themselves digitally in a way that will help them gain a competitive advantage. As the digital content specialist tries to take maximum advantage of its opportunity, it hasn't shied away from making investments that sometimes hurt short-term profitability but offer a better chance of long-term success.

Coming into Thursday's first-quarter financial report, Shutterstock investors wanted to see solid gains in both revenue and profits. The actual results showed that sales were strong for the quarter, but some will be disappointed by the lack of adjusted profit growth. Nevertheless, with the sale of a key division behind it, Shutterstock expects to build positive momentum heading into the rest of 2018.

Laptop showing digital image that combines Shutterstock editor with Google slides.

Image source: Shutterstock.

How Shutterstock fared to start 2018

Shutterstock's first-quarter financials reflected continuing trends that we've seen for a while. Revenue growth exceeded expectations, with a nearly 18% rise to $153 million topping the 15% growth rate that most investors were looking to see. Again, though, adjusted net income disappointed, falling 4% to $10.6 million, and the resulting adjusted earnings of $0.30 per share were less than the $0.34-per-share consensus forecast among those following the stock.

One key event during the quarter was Shutterstock's sale of its Webdam digital asset management business. Industry peer Bynder purchased the unit for $49 million, not including adjustments for working capital and other costs, and that produced an after-tax gain of $27.9 million for Shutterstock, adding $0.79 per share to its GAAP earnings for the period.

On a more fundamental basis, Shutterstock saw several encouraging signs. Continued expansion of the company's products helped to make Shutterstock's enterprise customers more active in licensing content, and the digital asset specialist has been able to attract a wider range of clients because of its more extensive library. Foreign currency impacts were favorable as well, adding almost 5 percentage points to Shutterstock's top-line growth. Direct relationships with enterprise customers kept producing more than their fair share of revenue gains, climbing 31% compared to an 11% rise in e-commerce-generated sales.

Shutterstock saw more mixed results on some of its operating metrics. Paid download growth slowed to a near-standstill, rising just 0.5% year over year to 43.7 million and actually declining slightly compared to the fourth quarter of 2017. Yet Shutterstock got a lot more revenue from each download, boosting unit revenue by 17% to $3.40 per download. Image and video collection expansion maintained growth rates of more than 40%, with 187 million images and 9.9 million video clips in Shutterstock's library.

Yet high costs continue to plague Shutterstock. The company spent more on royalties, as well as higher compensation for employees, sales and marketing costs, and expenses related to product development. That spending cut operating income by more than half during the quarter.

Can Shutterstock drive higher?

CEO Jon Oringer was pleased with how 2018 is shaping up. "We had a strong start to the year," Oringer said, "and we are seeing promising operational and financial returns on the investments we have made in our technology and product offerings." He also pointed to customer base expansion and new features on its platform as playing a key role in attracting new customers and retaining existing ones.

Moreover, Shutterstock has high hopes that it will be able to reap even better results in the future. Oringer said, "Our customers are responding to the many ways we are enhancing their experience and providing them with the content and tools they need, and we are confident that execution of our key strategic initiatives and our focus on delivering efficiency on operating costs will continue this momentum throughout the year."

Along those lines, the digital content specialist kept its guidance intact for the full year. Shutterstock expects sales of between $625 million and $635 million for 2018, or growth of 15% to 17% compared to 2017. Adjusted pre-tax operating earnings should grow between 19% and 25% in 2018, with results of roughly $105 million to $110 million.

Shutterstock investors weren't entirely happy with the earnings miss, and the stock fell 4% shortly after trading began on Thursday morning following the announcement. If it can continue to make progress in expanding its business and adding valuable content, though, then Shutterstock has a golden opportunity to benefit from strong overall demand for its digital assets.