Shutterstock, Inc. Q2 FY2024 earnings call

• Acquired Envato on July 22, which is expected to positively impact Content's subscription offerings and customer base.
• Content business showed slight improvement but not as expected; larger customers had resilient demand with solid bookings growth and strong retention, while small- and medium-sized customer acquisition was soft.
• Data, Distribution and Services had hypergrowth: Data business signed multi-year agreements with Microsoft, Runway, and Reka; Distribution business (GIPHY) saw strong traffic and impressions with media served trending upwards; Services business achieved 50% growth in Q2, with Studios 3D vertical scaling.
• Launched Shutterstock's GenAI 3D capabilities in conjunction with NVIDIA, with commercial API access starting in September; partnered with Databricks to offer Shutterstock ImageAI.
• Hired Kevin Hein as Chief Growth Officer for GIPHY to scale the business.

Shutterstock's revenue for Q2 2024 was $220 million, up 5.4% year-over-year. The Content business had revenue of $170 million, a decline of 9% versus the prior year, contributing 77% of total revenue. The Data, Distribution and Services business had revenue of $50 million, up 129% versus the prior year, contributing 23% of total revenue. Content revenue was $170 million for the quarter, a decline of 9% versus the prior year. Data, Distribution and Services revenue was $50 million in Q2, up 129% year-over-year and 24% sequentially.

• Raised lower end of revenue guidance to 6%-7% growth, with revenues expected to be $927M-$936M. Content revenues expected to continue improving sequentially; Data, Distribution and Services revenues strong but down in second half vs first half. Envato expected to contribute $75M to 2024 revenues, making Content up 2.5% inclusive of Envato.
• Adjusted net income per diluted share guidance maintained at $4.18-$4.32 per share. Adjusted EBITDA maintained at $245M-$248M, burdened by $7.5M one-time M&A costs.

• Volatility in Data business revenues and bookings due to rapid evolution of the nascent industry.
• Regulatory risks related to AI training data, as the regulatory environment heats up and model releases for AI training data are mission critical.
• Challenges in turning around the Content business, taking longer than expected to see significant improvement in new customer acquisition and product simplification.

Q: Andrew Boone asked about the stepdown in DDS business in the back half and recurring nature of deals.

A: Jarrod Yahes said stepdown is less than $10M, business is healthy, flexible in contracting to serve customers and build sustainable business.

Q: Andrew Boone asked about sales and marketing for back half.

A: Sales and marketing expected to continue at ~24% of revenue, stepdown in 2Q due to large branding campaign, will increase due to sales hiring for Data, Distribution and Services.

Q: Bernie McTernan asked about updated plan for Content business.

A: Paul Hennessy said simplifying product offerings like PremiumBeat and Pond5, Envato fits into unlimited product opportunity, committed to Content business getting back to growth.

Q: Bernie McTernan asked about use cases for 3D GenAI product with NVIDIA.

A: Paul Hennessy said super early days, but 3D GenAI supercharges workflow in immersive, gaming, retail, etc.

Q: Bernie McTernan asked about revenue share and margin for 3D GenAI product.

A: Jarrod Yahes said revenue share net, will come back at high margin but will pay contributor royalty consistent with Data approach.

Q: Robert Zeller asked about non-cash revenue in Data deals.

A: Jarrod Yahes said approximately $12M in equity revenue in Q2.

Q: Nitin Bansal asked about churn in existing subscriber base.

A: Jarrod Yahes said normal net revenue retention of ~80%, subscriber decline due to product mix shift away from free trial subscriptions towards transactional/pack products, sticking with strategy of eliminating free trial.