Sstk Site
Source: Shutterstock.

The digital revolution has had massive changes in the way people live, and one of the biggest transformations has come in photography. With picture-takers having faced the limits of expensive camera equipment and high-cost film processing for decades, the rise of digital photography led to much higher activity levels in photography, inviting Internet-based companies to use more images in their Web designs. Shutterstock (NYSE:SSTK) has sought to cash in on that trend by offering an online marketplace for commercial digital imagery, with both still shots and video to help its customers enhance their own online experience. With the company reporting third-quarter results Thursday afternoon, Shutterstock investors want to see if it can produce better bottom-line growth and take better advantage of its soaring revenue.

Shutterstock came public in late 2012, and the stock soared last year as investors reacted favorably to the company's strong growth. But earlier this year, Shutterstock suffered some sticker shock, losing about a quarter of its value and never really bouncing back. Let's take an early look at what's been happening with Shutterstock over the past quarter and what we're likely to see in its report.

Stats on Shutterstock

Analyst EPS Estimate

$0.24

Change From Year-Ago EPS

14.3%

Revenue Estimate

$82.53 million

Change From Year-Ago Revenue

39%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Shutterstock improve its earnings image this quarter?
In recent months, investors have had mixed views on Shutterstock earnings, cutting their projections for the third quarter but raising full-year 2014 and 2015 estimates. The stock has remained in its holding pattern, having fallen about 3% since early August.

Shutterstock's most recent results from back in August show the pace at which the imagery specialist has grown. Revenue soared 41% as the company's collection of images grew by 42% to climb above the 40-million image mark. Moreover, with 1.9 million video clips, Shutterstock has done well in diversifying its overall inventory. The decision to launch a music-licensing service also drew positive comments from founder and CEO John Oringer, who argued that it was a "great step forward in expanding our product offering to businesses of all sizes." Yet on the bottom line, Shutterstock's growth wasn't as impressive, as adjusted net income rose at a slower 15% pace, and GAAP earnings actually fell for the quarter due in part to substantial equity-based compensation. Even looking at pre-tax operating income, growth of 25% was slower than revenue gains as operating expenses skyrocketed more than 56% during the quarter.

From a longer term perspective, though, Shutterstock has made substantial progress. The company's key enterprise segment saw sales double from year-ago levels, and as Motley Fool Hidden Gems adviser Frank Thomas told subscribers after the second-quarter report, Shutterstock is targeting small- and mid-sized businesses that haven't traditionally had affordable access to libraries of images. Moreover, with international markets producing strong growth as well, Shutterstock has plenty of global expansion opportunities.

Sstk Palette Image Search
Shutterstock's Palette Image Search. Source: Shutterstock.

Admittedly, concerns about competition and valuation were what initially spurred Shutterstock's poor performance in early 2014. For instance, when Getty Images announced that it would release millions of digital images free for non-commercial purposes, Shutterstock shares plunged about 10%, as many saw the move as a threat to its subscription-purchase business model. Yet given that Shutterstock aims at commercial publishers and that Getty Images itself competes in the pay-for-images market as well, investors shouldn't conclude that Shutterstock's business won't survive. Moreover, Shutterstock's partnership with Facebook (NASDAQ:FB) included a similar offering of free Shutterstock photos to Facebook's advertising clients, showing the value of getting images in front of the general public now to spur more paid business in the future.

In the Shutterstock earnings report, watch to see which areas of the company's overall business are producing the most growth. With so many favorable directions to pursue and so much potential to enter new and exciting markets, Shutterstock has a lot of possible upside in its stock price if things keep going well for the company going forward.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.