Shutterstock has been on fire lately. In the past six months alone, the company’s stock price has rocketed 40.7%, reaching $21.34 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Shutterstock, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Is Shutterstock Not Exciting?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Shutterstock. Here are three reasons we avoid SSTK and a stock we'd rather own.
1. Customer Spending Decreases, Engagement Falling?
Average revenue per request (ARPR) is a critical metric to track because it measures how much the company earns in transaction fees from each request. ARPR also gives us unique insights into a user’s average order size and Shutterstock’s take rate, or "cut", on each order.
Shutterstock’s ARPR fell over the last two years, averaging 5.4% annual declines. This isn’t great, but the increase in paid downloads is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Shutterstock tries boosting ARPR by taking a more aggressive approach to monetization, it’s unclear whether requests can continue growing at the current pace. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Shutterstock’s revenue to rise by 1.6%, a deceleration versus This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Shutterstock’s margin dropped by 16.5 percentage points over the last few years. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business. Shutterstock’s free cash flow margin for the trailing 12 months was breakeven.
Final Judgment
Shutterstock isn’t a terrible business, but it doesn’t pass our bar. After the recent rally, the stock trades at 2.8× forward EV/EBITDA (or $21.34 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
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