Shutterstock(US:SSTK)2024-02-25 16:00Share Repurchases and Dividends - The company repurchased approximately 634,500 shares of common stock at an average cost of $44.45 per share under the 2023 Share Repurchase Program, with $71.8 million remaining authorization as of December 31, 2023[229] - Total repurchases under the 2015, 2017, and 2023 Share Repurchase Programs amounted to approximately 4.4 million shares at an average per-share cost of $51.74[235] - The company repurchased 203,168 shares of its common stock in Q4 2023 at an average price of $45.29 per share, with $71.8 million remaining under the $100 million repurchase authorization[230][233] - The company's dividend policy, initiated in 2020, continues with quarterly cash dividends, subject to board approval and financial conditions[227] - The company's share repurchase programs authorized up to $200 million in repurchases, which were fully utilized by December 31, 2022[228] Ownership and Governance - The company's founder and Executive Chairman, Jonathan Oringer, owns approximately 31% of the outstanding common stock, which may influence major strategic decisions and stockholder approvals[188] - The company had 35,544,416 shares of common stock outstanding as of February 21, 2024[193] - The company's market value of voting and non-voting common stock held by non-affiliates was $1,203,063,393 as of June 30, 2023[5] Revenue and Financial Performance - The company's total revenue for 2023 was $874.6 million, with Content revenue contributing $737.3 million and Data, Distribution, and Services revenue contributing $137.3 million[245] - Revenue increased by $46.8 million (6%) to $874.6 million in 2023 compared to 2022, with a 5% increase on a constant currency basis[281] - Data, Distribution, and Services revenues surged by 256% to $137.3 million in 2023, driven by growth in data offerings and $10.5 million from Giphy[283] - Enterprise revenues grew by 33% to $434.6 million in 2023, fueled by data offerings and contributions from acquisitions like Pond5 and Splash News[285] - E-commerce revenues declined by 12% to $439.9 million in 2023, impacted by weak new customer acquisition, partially offset by Pond5's full-year contribution[284] - Content license revenues declined by 7% to $737.3 million in 2023, impacted by weak customer acquisition, partially offset by Pond5's growth[282] - Net income increased by $34.2 million (45%) to $110.3 million in 2023, driven by a $50.3 million bargain purchase gain and lower tax provisions[280] - Revenue increased by $54.4 million (7%) to $827.8 million in 2022, with 18% and 7% of revenues denominated in Euro and Pounds Sterling, respectively[299] - Data, Distribution, and Services revenues increased by 142% to $38.5 million in 2022, driven by growth in the data offering and Shutterstock Studios[301] - Enterprise revenues increased by 15% to $326.4 million in 2022, driven by growth in the data offering and acquisitions of Pond5 and Splash News[303] - Shutterstock's total revenue for 2023 was $874.6 million, with Content revenue at $737.3 million and Data, Distribution, and Services revenue at $137.3 million[18] Customer and Subscriber Metrics - The company had over 2.0 million active, paying customers in 2023, with 153.0 million paid downloads across all brands[249] - Subscriber revenue for 2023 was $351.5 million, with 523,000 subscribers at the end of the period[264] - Average revenue per customer for the last twelve months was $412 in 2023, up from $341 in 2022[264] - Revenue per download increased to $4.72 in 2023, compared to $4.40 in 2022[264] - Paid downloads decreased to 153.0 million in 2023 from 173.3 million in 2022, with revenue per download rising to $4.72 from $4.40[286] - Revenue per download increased by 6% to $4.40 in 2022, primarily due to changes in product mix and a reduction in paid download volumes[304] - Subscribers are defined as customers purchasing monthly recurring products for at least three months, with subscriber growth seen as an indicator of platform engagement and future growth potential[258] Content and Data Offerings - The company's Data, Distribution, and Services offerings include metadata utilization, Giphy platform integration, and Shutterstock Studios' customized content creation solutions[252][255] - The company's metadata offering has seen increased demand for machine learning and generative AI model training, serving a diverse customer base from large tech companies to startups[253] - The company's content collection grew to 771 million images and 54 million footage clips as of December 31, 2023[249] - Shutterstock's Data, Distribution, and Services offerings include metadata licenses, Giphy distribution and advertising services, and Shutterstock Studios' custom content and production tools[17] - The company's metadata is in high demand for machine learning and generative AI model training, with customers ranging from large tech companies to startups[24] - Shutterstock launched AI image creator and Creative AI-powered editing tools in 2023, offering features like Magic Brush, Variations, Expand Image, Smart Resize, and Background Remover[28] Cybersecurity and Privacy - The company has implemented a layered governance structure for privacy and cybersecurity, including compliance with GDPR, UK Data Protection Law, LGPD, and CPRA[212] - The company conducts annual PCI compliance certification and maintains a bug bounty program and penetration testing to identify and remediate vulnerabilities[213] - The company's cybersecurity strategy includes oversight by a CISO with over 20 years of experience, supported by management-level committees and a cybersecurity incident team[217] - The EU-U.S. Data Privacy Framework, established in October 2022 and extended to the U.K. in October 2023, requires self-certification for data transfers, impacting compliance efforts[147] - Cybersecurity risks could lead to significant capital expenditures, business interruptions, and reputational harm, despite ongoing efforts to safeguard systems[156] Costs and Expenses - The company's cost of revenue includes royalties paid to contributors, which represent the largest component of operating expenses and fluctuate proportionately with revenue and paid downloads[250][270] - Cost of revenue increased by $38.3 million (12%) to $352.6 million in 2023, primarily due to higher depreciation, royalty costs, and Giphy-related expenses[289] - Product development expenses rose by $30.7 million (47%) to $96.2 million in 2023, driven by Giphy-related costs and investments in new products[291] - Sales and marketing expenses grew by $11.6 million (6%) to $214.7 million in 2023, driven by higher employee and consultant costs, including Giphy-related expenses[290] - General and administrative expenses increased by $10.0 million (8%) to $142.6 million in 2023, driven by higher non-cash equity-based compensation and Giphy employee-related costs[292] - Cost of revenue increased by $36.6 million (13%) to $314.3 million in 2022, driven by increased depreciation, royalty costs, and website hosting expenses[306] - Product development expenses increased by $13.4 million (26%) to $65.4 million in 2022, driven by higher employee and third-party contractor costs[308] - Marketing expenses in 2023, 2022, and 2021 were approximately $93.1 million, $97.2 million, and $112.9 million, respectively, with expectations for continued significant spending[93] - Product and development costs in 2023, 2022, and 2021 were approximately $96.2 million, $65.4 million, and $52.0 million, respectively, with potential future increases as the company continues to innovate[96] Tax and Compliance - The company is subject to a 1% excise tax on stock repurchases under the Inflation Reduction Act of 2022, which could increase the cost of future share repurchases[190] - The company faces potential tax liabilities and compliance burdens due to the taxation of e-commerce transactions across multiple jurisdictions, which could impact financial condition[183] Technology and Infrastructure - The company's proprietary AI technology and large-scale datasets power search algorithms and SEO, enhancing content discovery for customers[40] - The company's technology infrastructure supports public-facing web properties and back-office systems, with a focus on proprietary software development[46] - The company has expanded its use of content delivery network solutions to ensure high-speed global access to its platform[52] - The company primarily uses third-party cloud hosting providers to ensure scalable, reliable, and secure global infrastructure, allowing it to focus on scaling its business and meeting global customer demand[51] - The company's growth depends on technological innovation, including expanding capabilities for footage and music track management, requiring significant infrastructure investments[96] Marketing and Customer Acquisition - Marketing investments represent a significant percentage of revenue, with efforts including search engine optimization, paid search, and social media to manage customer acquisition costs and achieve targeted returns[53] - The company's marketing efforts create a self-reinforcing network effect, attracting more paying customers and increasing contributor earnings, which in turn drives more content submissions and customer retention[55] - The company's revenue growth depends on increasing brand awareness and market share, with significant resources allocated to advertising and marketing efforts[99] - Pricing strategies are sensitive to external factors, including competition and technology costs, which could impact sales and margins[92] - The company's marketing efforts, including SEM, SEO, and social media, may not succeed due to execution challenges or external factors beyond control[93] Content Licensing and Contributor Management - The company's subscription-based pricing model offers monthly subscriptions and other contractual plans for content licenses, catering to varying customer needs[36] - The company's contributor website operates in 29 languages, allowing contributors to register and upload content directly through the website or mobile application[38] - Contributors are required to add a descriptive title and up to 50 keywords to each image and footage submission, with AI-driven tools providing keyword suggestions[40] - Contributors can monitor download activity by content type and geography, with insights provided into seasonal and current customer search trends[44] - The company's content review process uses proprietary AI technology and a trained team of reviewers, ensuring high-quality and licensable content[39] - Contributors earn royalties based on a tiered earnings rate schedule tied to annual licensing volume, with the ability to remove content from the collection[43] - The company continuously enhances its content collection through direct acquisitions, strategic partnerships, and exclusive distribution agreements[45] - Content on the platform is licensed under perpetual, royalty-free licenses, with custom content offered on an exclusive basis, while contributors are not typically required to provide content exclusively[57] Intellectual Property and Legal Risks - The company's indemnification obligations under license agreements are capped at amounts ranging from $10,000 to $250,000, with exceptions for certain products where obligations may be uncapped[59] - The company owns a portfolio of trademarks, domain names, copyrights, and patents, which are critical to its business and marketing efforts[61] - The company faces risks from intellectual property claims, which are costly and time-consuming to litigate, potentially harming financial condition and reputation[141] Competition and Market Position - The company faces competition from a wide range of entities, including large media companies, emerging AI technologies, and individual content creators, with low barriers to entry in the industry[88] - Key competitive factors include content quality, licensing options, technology use, brand recognition, and customer service, with competitors potentially offering more attractive or innovative products[89] - The company's growth strategy relies on network effects, where a growing customer base attracts more contributors, increasing content selection and attracting additional paying customers[86] - The company's ability to attract and retain customers and contributors is critical to its success, with any decrease in platform attractiveness potentially leading to revenue loss[87] Expansion and Innovation - Expansion into new content categories, such as Shutterstock Editorial and AI-generated content, and new services like Shutterstock Studios, involves increased capital and marketing spend[102] - The company's growth depends on technological innovation, including expanding capabilities for footage and music track management, requiring significant infrastructure investments[96] Stock Performance and Market Trends - Shutterstock's stock price performance from 2018 to 2023 shows a growth from 100.00 to 142.39, compared to NYSE Composite's growth from 100.00 to 167.12 and S&P Software & Services Select Industry's growth from 100.00 to 204.92[238] Operational and Geographic Reach - Shutterstock operates in over 150 countries and licenses content from contributors in over 100 countries, relying on secure processing and transmission of confidential information[214] - Customer service teams operate in over 20 languages and 150 countries, with teams located in Singapore, Berlin, and New York[56] Other Financial Metrics - The company recognized a bargain purchase gain of $50.3 million in 2023 related to the acquisition of Giphy[293] - Impairment of lease and related assets was $18.7 million in 2022, primarily due to the abandonment of certain office spaces[294] - Other income in 2023 included $4.8 million of interest income and $0.9 million of favorable unrealized foreign currency fluctuations, partially offset by $1.9 million of interest expense[295]