Is Shutterstock A Good Investment?

Is Shutterstock A Good Investment? Mobile devices have made it possible to preserve all of the moments that make up a life, from mundane events like an ordinary meal to milestones like births, graduations, and weddings. When the power of social media is added to the mix, these images make their way from a small, intimate audience to a global network of family, friends, acquaintances, and fans. 

It hasn’t always been this way. In fact, the staggering volume of photos taken every second of every day is a relatively recent development. As digital photography has grown in popularity, stock image companies like Shutterstock have found their niche.

They collect massive libraries that include images of just about anything imaginable, then they sell the rights to anyone who needs to add a visual component to the content they are producing. 

Of course, what investors want to know is this: Is such a company profitable? In other words, is Shutterstock a buy?

Photography: From 1826 – Today In A Snapshot

The world’s first photograph was produced in 1826, but it was decades before photography was an option for average families. Kodak didn’t sell its first commercial camera until 1888, and even then, it was uncommon for people to have their pictures taken. A portrait was a once-in-a-lifetime event, typically reserved for the wealthy. 

Photography really entered the mainstream during World War II, when it was slightly more common for members of the media to have access to cameras. Photojournalists attempted to capture the horrors of war with their images, and a new, more candid genre rapidly gained popularity. About a billion photos were taken worldwide each year in the 1930s. 

In the 1940s, the cost of film and personal cameras was still relatively high, but affordable for middle-class families. Taking pictures moved into the mainstream, and by the 1960s, roughly three billion pictures were taken each year. 

Digital cameras were introduced in 1991, and the first camera phone came out in the year 2000. Now, in 2020, the photo and video technology in an average smartphone is of such high quality that professionals photographers and videographers use these tools in their work. 

In 2014, more than 1.8 billion digital images were uploaded to the internet each day – a total of 657 billion per year. That figure has grown exponentially, and an estimated 1.4 trillion images will be captured in 2020.

Given the ease with which nearly anyone can create a quality photograph, it’s clear why investors might question the potential of a stock image company like Shutterstock.

Shutterstock Has A Library of 300+ Million Images

Capturing images, video, and music clips might be easy with free, accessible tools, but that doesn’t mean it is convenient.

If a small business wants to add highly specific photos to a brochure or website, it’s far simpler to download the perfect shot than to go out and take it.

That’s especially true for those who want to include people in the picture. Releases are generally needed when a person’s likeness is used for marketing. 

Shutterstock is built on the idea that while anyone can take quality photos, they don’t necessarily want to put in the effort.

The company offers a massive library of more than 300 million images, which can be downloaded individually for a fee or as part of a subscription package. The company has more than one million contributors uploading as many as 200,000 new pieces of content each day. 

To date, clients in more than 150 countries have downloaded an extraordinary one billion-plus video clips, images, and music tracks to enhance their projects. Shutterstock boasts an impressive client list that includes McDonald’s, National Geographic, MasterCard, and Xerox. 

With all of that in mind, the question remains – is Shutterstock a good investment? 

Is Shutterstock Stock a Buy?

At the end of the first quarter, investors and analysts weren’t especially optimistic about second quarter 2020 results, but everyone – including Shutterstock’s leaders – were pleasantly surprised.

Though the company still posted a loss, the July 28th earnings announcement exceeded expectations, down just two percent year-over-year at $159 million.

When broken down by division, North American and European revenues declined by three percent, but there was a bit of growth in markets outside of those two regions to ease the drop. 

Shutterstock’s leaders took the opportunity to share strategic plans for growth in coming months and years. Among other things, Shutterstock is reinvesting in the business to promote expansion in emerging markets, and it is hard at work on improvements to its platform.

This promises to increase appeal in new market segments, driving greater revenue long-term. Some analysts are projecting earnings growth of around 21 percent per year for the next few years. 

The earnings announcement prompted a rally in share value, bringing stock prices up and well over pre-COVID levels. Given the company’s resiliency despite the extraordinary challenges of 2020 and its comprehensive plan for growth, many analysts are now encouraging existing Shutterstock investors to stick it out.

However, shares are a bit pricey for those looking to open a position. The potential for future profits is integrated into current share prices, so there may not be much additional value to be had.

But…Shutterstock Seriously Upset Its Contributors

Aside from the typical risks of investing in any security, Shutterstock shares come with a few unique challenges. One of the biggest is a general sense of frustration among long-time contributors after Shutterstock changed its compensation structure.

Prior to the change, compensation increased as each contributor’s “lifetime earnings” grew. The new policy resets all contributors at the start of the year. That means a sale could generate just ten cents for the photographer. 

A large group of contributors banded together and coordinated a temporary deactivation of their accounts – in other words, a virtual strike.

The group believes that 2020’s better-than-expected earnings were achieved – at least in part – by reducing compensation for content creators.

That doesn’t look good for the company and could backfire if the best, most prolific contributors take their work elsewhere.

Shutterstock Has Stiff Competition

Of greater concern is the risk that Shutterstock will eventually lose market share to competitors.

Companies like Getty Images, PixaBay, Adobe Stock, Dreamstime, Unsplash, and Pexels are all popular among consumers, and many offer content at a lower price than Shutterstock clients pay.

Some even have images available at no charge. Though their collections aren’t nearly as extensive as Shutterstock’s, most consumers are willing to give up variety when it means reducing expenses. 

Is Shutterstock Stock a Good Buy? The Bottom Line

The bottom line is that current investors would be wise to hold onto their Shutterstock shares, but new buyers may be better served with an alternative selection.

Shutterstock is a bit costly given the company’s underlying value, and earnings potential appears already baked into the per-share price.

Instead, try a company with greater diversity in its product line. For example, many major digital media firms have a stock image arm. That gives you exposure to this somewhat lucrative market, without the risks that come along with a more focused product line.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.