Shutterstock (SSTK 1.78%) has amassed an impressive library of content, and for several years now, the company has worked to convince would-be clients that they need to update their image in order to connect better with their own customers. Yet even as demand for the images, videos, and other content that Shutterstock provides has risen, so too have the number of competitors seeking to provide similar services to potential customers.
Coming into Tuesday's second-quarter financial report, Shutterstock investors had expected to see solid sales gains with modest profit growth. Shutterstock was able to boost its bottom line more than many had foreseen, but some sluggish growth on the revenue front raised some questions about the company's longer-term growth trajectory.
Shutterstock deals with slower growth
Shutterstock's second-quarter results gave shareholders only part of what they were looking for. Revenue was up just 3% to $161.7 million, badly missing the 9% sales growth that most of those following the stock had anticipated. However, Shutterstock did manage to post adjusted net income of $11.8 million, and the resulting adjusted earnings of $0.33 per share topped the consensus forecast among investors for $0.31 per share.
Currency issues were the primary headwind to Shutterstock's top-line growth. In constant currency terms, the digital library provider saw revenue climb 5%.
Also, Shutterstock saw a key source of customer growth essentially dry up. The company's e-commerce channel saw a 6% rise in revenue generation year over year, accounting for about 60% of Shutterstock's total business. However, revenue from enterprise customers using its services directly was down 0.2% over the same period, and that reined in overall sales gains.
Shutterstock's fundamental metrics saw moderating growth as well. Paid downloads were up 1.4 million from the year-ago quarter to 46.6 million, which was down very slightly from its traffic three months ago. Revenue per download rose 1% year over year to $3.44. Shutterstock's library now features 280 million images and 15 million video clips, both up about 37% in the past year.
Cost containment was a challenge in the low-growth environment. Operating expenses climbed 5%, outpacing revenue growth, as higher overhead from compensation and severance costs weighed on profitability. Operating income was down 45% year over year as a result.
What's next for Shutterstock?
Founder and CEO Jon Oringer put the quarter into a longer-term perspective. "We continued to see demand from our customers around the globe," Oringer said, "resulting in further revenue growth and the strengthening of our working capital position." The CEO also pointed to innovation and creativity as a constant source of opportunity.
Even Oringer admitted that there are challenges for the company to overcome. As he put it, "We recognize that there is room for improvement in our enterprise sales channel and, in the near-term, have revised our outlook for the year as our team develops strategies to reaccelerate growth." Those moves should include initiatives to make the most of Shutterstock's existing assets as well as the approach it takes in going to market.
In response, Shutterstock cut back its sales guidance for the full year. The company now expects revenue of $645 million to $670 million, down $25 million to $40 million from its previous range. That's likely to cost Shutterstock about $15 million to $19 million in expected operating income, leaving it in an expected range of $18 million to $32 million.
Shutterstock investors didn't like that outlook, and the stock fell 9% on Tuesday following the announcement. Having identified the need for growth initiatives in the past, shareholders appear to be getting a bit impatient about how quickly Shutterstock is finding ways to bolster its revenue.