Shares of Shutterstock Inc (SSTK +0.18%) have fallen nearly 10% in the last two days following an announcement by rival Getty Images that it would make 35 million images available to online publishers for non-commercial purposes. Getty's decision came out of a desire to deflect piracy of its images as it acknowledged that many of its images are already being copied anyway.
Investors seemed to interpret the move as a threat to Shutterstock, the imagery marketplace juggernaut that has seen shares jump over 300% since its 2012 IPO. Founded in 2003, Shutterstock now has over 30 million photos and a million videos in its database, and the site is available in 20 languages. Those Images aren't cheap, starting at $29 for 2, or a yearly subscription goes for $2559. Getty Images, by comparison, has 150 million photos available for licensing, which are similarly priced.
The price tag on these images should indicate that Getty is dealing with two lines of business, here. Like other "freemium" models, the free images are meant as an ad for Getty, a way to get some of the images out, and to serve as its own means of advertising and data collection. Getty is not just dumping free images on the Internet -- that would undermine its own business. After all, these companies cater to big media enterprises, ad agencies, and marketing departments -- businesses who need quality imagery and can afford to use it. As Shutterstock CEO Jon Oringer said of Getty's decision, "It's not very landscape-changing at all. You can't use their images for commercial use and 99.9% of our business is commercial use. We sell to businesses who sell other stuff, so we're just going to concentrate on doing that."
Getty's new policy does allow media companies to use free images, but Getty retains the right to place ads on the images or use them to collect user data, making companies unlikely to use them for free. The plan could even backfire as the decision has upset photographers who don't want their images used free for only Getty's benefit, and that could drive more of them to develop relationships with other buyers such as Shutterstock.
Time to stock up on Shutterstock?
Commenting on the stock's latest dip, Oringer said he was unconcerned, and that, in fact, he didn't even know if Getty's move was the reason for the drop. "We easily go up and down this amount on days where there is no news," he said. "But short-term jumps don't really matter when you're building a company that will be around for decades." That statement should help calm any concerns Shutterstock investors may have about the stock getting pumped up too high. At a P/E of 121, it would be easy to say the stock is "priced to perfection," but Oringer seems to have his mind in the right place: focused on the long-term growth of the business. And the company is continuing to grow at a rapid pace, adding over 250,000 images in the last week alone.
Online media is only growing in importance and usage, and Shutterstock appears to have a strong foothold in this niche businees, which should only grow deeper as the company becomes more established, and digital communication becomes more pervasive. A recent partnership with Facebook, in which the social network giant is offering 25 million of Shutterstock's photos free to its advertisers, shows off just one of the many unexpected opportunities available for the imagery marketplace. Analysts are expecting a 30% growth rate for the current year, and with the potential of new opportunities like the Facebook partnership, there are plenty of ways Shutterstock could beat that mark. Given the growing importance of digital media as online communications come to predominate, I'd expect many good years ahead for Shutterstock.
