Could This Photo Firm Double Your Money?
2 million customers in more than 150 countries use Shutterstock (NYSE: SSTK), a company that widely has the reputation of being “just a stock photo” company. In reality, it has a vast array of images, videos, music, and even an AI-driven creative platform.
With its extensive library of over 390 million images and 24 million videos and as a leader the global stock photo and video market that is forecast to reach $5 billion by 2027, Shutterstock presents an intriguing opportunity to value investors as you’re about to find out.
Key Points
- Shutterstock’s vast collection of over 390 million images and 24 million videos, along with its AI-driven platform, creates a strong economic moat.
- The company’s stable revenue from diverse sources and favorable valuation metrics suggest significant upside potential. It also offers a 3.1% dividend yield with potential for growth.
- Shutterstock’s growth in emerging markets and partnerships with major companies like Facebook and Google enhance its market presence and drive further growth.
Shutterstock Has a Moat
Increasing demand for digital content across industries ranging from marketing and advertising to new media boosts Shutterstock’s market potential. Indeed its vast content libraries form an economic moat that has produced a competitive advantage. And it’s not a company that has rested on its laurels. Like Canva, it has embraced AI and machine learning algorithms to enhance search capabilities, making it easier for users to find the right content quickly.
That’s on the demand side while on the supply side it’s also figured out how to incentivize its global network of contributors so they continuously upload fresh content, ensuring the library remains up-to-date and relevant.
The applications are not limited to US shores, either. Shutterstock’s focus on expanding its presence in emerging markets, such as Asia and Latin America, opens up new growth opportunities.
And to cement its role as an industry leader, management has been acquisitive. The acquisition of TurboSquid, a leading 3D content marketplace, and the creation of Shutterstock Studios, a custom content creation service, diversify its offerings and tap into new markets.
The company also has partnerships with major companies like Facebook and Google to provide content for their platforms increase its visibility and usage.
Put all those growth drivers into the mix and you can see why Shutterstock has high growth potential.
Is Shutterstock a Deal?
Shutterstock makes its money from subscriptions, on-demand content, enterprise solutions, and custom content creation services. Subscriptions represents about 60% of total revenues, providing a stable and recurring income stream.
From our analysis, by virtually every valuation metrics, the company is on sale. Let’s start with analysts, who have a consensus price target of $58 per share, suggesting about 53% upside. Add to that the discounted cash flow forecast analysis which puts fair value at $70, almost twice where the stock is currently trading. Or the fact that the P/E is 14.5x, under the 15x threshold that Warren Buffett is widely regarded as favoring.
In addition, the stock pays a 3.1% dividend yield and the payout ratio is just 42% suggesting that it can be increased over time. Both EBIT and free cash flows are positive also.
All in all, Shutterstock presents a compelling investment opportunity. Here are just a few highlights to summarize why:
- Subscription revenue increased by 16% year-over-year.
- 4% increase in average revenue per user
- Global expansion strategy has paid off, with revenue from Asia and Latin America growing by 18% and 15%, respectively
- AI-driven search engine improvements led to a 10% increase in user engagement
- 7% increase in customer retention rates
