Shares of online stock photography company Shutterstock (SSTK 0.43%) skyrocketed on Tuesday after the company reported financial results for the third quarter of 2023. The stock had been down as much as 36% year to date and was hitting three-year lows as the market fretted about the rise of generative artificial intelligence (AI). However, the company is actually benefiting from the trend, as seen in Q3 results. And that's why the stock was up a whopping 21% as of 10:45 a.m. ET.
Here's what's working for Shutterstock
The Q3 headline numbers weren't necessarily great for Shutterstock -- surprising given the market's reaction. The company's revenue of $233 million was up 14% year over year, which was good. But its subscriber count fell to 551,000, down 5,000 from the previous quarter. Paid downloads were also down.
Shutterstock made up the difference with higher revenue per subscriber and per download. Moreover, the company now shares its image data with AI partners to train their generative AI models. This generated over $45 million in Q3 revenue, up from $17.3 million in the previous quarter and up from a paltry $1.5 million in the prior-year period.
The market had been assuming that the rise of generative AI applications would make stock photography less relevant over time. But Shutterstock has turned the risk into an opportunity by forging partnerships, including with ChatGPT parent company OpenAI.
Renewed optimism from the market
At the midpoint of its guidance, Shutterstock expects to generate about $220 million in fourth-quarter revenue, which would be a very modest 1% increase from the same quarter of 2022. Therefore, its pedestrian growth is expected to slow further.
That said, Shutterstock is profitable, its profit margins are improving, and it's returning capital to shareholders. Having dropped so much already, the stock was trading at a cheap valuation. And now that it's showing that it can adapt to the times, investors seem more optimistic about Shutterstock's long-term prospects.
