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Shutterstock (SSTK) is a global provider of stock photography, stock footage, and editing tools. It’s used by some of the biggest websites, publishers, and broadcasters all over the world.
This means that Shutterstock is an integral part of all the content that is generated across the world on the internet. And, since more people are spending more time online, the company’s prospects continue to improve. Further, as the amount of content online increases, there will be more of a need to upgrade its appearance by investing in products and services sold by companies like SSTK.
This bullish, long-term narrative is validated by SSTK’s near-term and past results. The company has a consistent track record of revenue growth. However, it remains fairly valued by many metrics.
In the past month, the stock has declined by about 8% due to the selloff in technology stocks. Investors should take advantage of this opportunity to add SSTK, given that the company’s earnings trajectory remains intact.
SSTK was founded in 2003 by Jon Oringer as a website, where he made available his own stock photos for a subscription fee. Due to high demand, he began hiring additional photographers.
By 2006, it had become the world’s largest subscription-based stock photo agency in the world. Soon, it added stock video footage as well and offered an “on demand” service for a la carte pricing. It continued to grow via acquisitions.
SSTK IPO’d in 2012 at a valuation of $700 million with a total of 18 million stock images on its site. Since its IPO, it’s continued to add new products and features, expanded into new countries, and struck partnerships with companies like Facebook (FB). As of now, SSTK has 1.2 million contributors. 2.5 million customers, 360 million images, and 21 million video clips.
SSTK shares one similar attribute with many of the biggest-winning growth stocks of the past as it’s a platform company. SSTK essentially connects sellers and buyers and takes a cut of each sale.
This business model is very attractive to investors because it can scale higher with little marginal cost. Photographers and videographers shoulder the cost and effort of creating content which they sell on SSTK. Many creatives derive a significant chunk of their earnings from SSTK.
SSTK is also maturing as a company as it shifts its focus from maximizing revenue growth to also increasing earnings. Analysts expect 52% earnings growth for the company in 2021. Over the past year, analysts have also been aggressively hiking earnings estimates – 2021 EPS has increased from $1.4 to $2.7, and 2022 EPS has gone from $1.7 to $2.9.
SSTK has a considerable moat given the ‘network effects’ that are driving its growth and dominance of the stock photography and film niche. Typically, these businesses get higher multiples, since they win large amounts of market share and generate above-average margins.
Therefore, SSTK is certainly attractive from a valuation perspective given its steady growth and massive margins. It has a reasonable price to sales ratio (P/S) of 5 and a forward price to earnings ratio (P/E) of 31.
Wall Street analysts are also bullish on the stock as four of five analysts covering the stock have a Buy rating. Their average price target is $100 which implies 9% upside. Analysts have been getting more bullish on the stock as it wasn’t negatively impacted by the coronavirus, and many expect spending on the platform to increase as small businesses increase spending on creating content for marketing.
The combination of steady growth and tantalizing value has resulted in an A grade from the POWR Ratings service, which equates to a Strong Buy. This grade is calculated by weighting 118 different factors. Over the last 20 years, A-rated stocks have generated a compound annual return of 30.7%. So, it makes sense that only an elite group of stocks qualify for this grade.
The POWR Ratings also assess stocks according to different components and industry conditions. SSTK has a Growth grade of A which is consistent with its long-term track record of compounding revenue growth. Given that the industry continues to expand and SSTK is taking up more market share, there seems to be no reason for this trend to end.
In terms of Quality, SSTK is also rated an A as it has consistently demonstrated the ability to grow via acquisitions and into new segments. Many companies fail at this task and aren’t able to integrate these acquisitions effectively.
Click here to access SSTK’s POWR ratings for Value, Stability, Industry, Quality, Momentum, and Sentiment.
It’s already mandatory that companies have an online presence. Now, they are investing increasing amounts to ensure that their content reaches customers and leaves a positive impression.
This is why SSTK expects 6 to 8% revenue growth over the next 5 years. It’s also been successful in increasing revenue per user. The company has a deep and wide moat around its business, yet it remains attractively priced given the high-quality business and long-term potential.
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9 “MUST OWN” Growth Stocks for 2021.
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SSTK shares were trading at $89.80 per share on Wednesday afternoon, down $2.30 (-2.50%). Year-to-date, SSTK has gained 25.55%, versus a 6.10% rise in the benchmark S&P 500 index during the same period.
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles. More…
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