Mid-Cap Shutterstock Holds Promise Despite Current Correction

Shares of mid-cap Shutterstock NYSE: SSTK are down 10.13% this month, following a rally to the tune of 44.55% in the past 12 months. 

The company went public in 2012, so it’s well within the “early opportunity” phase where it’s likely to notch some of its biggest gains. This has been a volatile stock, and has not yet delivered a monster return. 

Is that about to change?

Shutterstock has a five-year return of just 16%. On a monthly chart, you can easily see a long stretch of relative underperformance between 2014 and 2021. For a stretch there, hedge fund managers and other institutional investors were pessimistic about the company’s ability to meet growth expectations, but that appears to be changing. 

Shutterstock is a marketplace for digital images, such as 3D models, photos, music and video clips. The company has more than 2 million paying customers around the world. About 60% pay a subscription fee to license content. The remaining customer base is comprised of larger enterprise customers, such as advertising agencies, production companies and publishers who are seeking more distinctive content for specific usage. 

The company has been adding more subscription plans, which are successfully increasing subscriber numbers and revenue. 

Its largest competitors include Getty Images, Canva, VimeoStock and AdobeStock NASDAQ: ADBE, as well as business units of larger media firms. 

Growing Through Acquisition

The company has added to its library of capabilities through acquisition. In 2021, Shutterstock acquired PicMonkey, Pattern89, Datasine, Shotzr Asset and TurboSquid, adding to its capabilities in the areas of artificial intelligence, graphic design and 3D modeling. 

The company has been profitable for several years, although earnings growth ebbed and flowed. Revenue grew in six of the past eight quarters, with earnings growing at double-digit rates in five of the past eight quarters. 

Revenue has grown over the past three years, but earnings took a hit in 2019 vs. 2018 before rebounding in 2020. For 2021, analysts expect Shutterstock to earn $3.19 per share, which would be a 22% increase over 2020. That’s seen rising another 10% this year to $3.51 per share. 

Data compiled by MarketBeat show that Shutterstock topped analysts’ earnings views in each of the past seven quarters. The last time it missed was pre-pandemic, in the quarter ended in February 2020. 

Analysts have a “buy” rating on the stock with a price target of $127, representing a 29.14% upside, according to MarketBeat analyst data. Some analysts have even higher targets. For example, after Shutterstock’s last earnings report in late October, Needham and JMP Securities both boosted their price target to $145. 

The number of mutual funds owning shares of Shutterstock rose in the past three quarters, from 384 at the end of March 2021 to 487 at the end of December. 

Mid-Cap Dividend Payer

One thing that Shutterstock has going for it, vs. many small- and mid-cap stocks: The company pays a dividend. MarketBeat dividend data show a dividend yield of 0.85%, with the payout standing at $0.84 per share annually. That’s not the greatest, but it’s not always the case that a smaller tech company pays a dividend, so it’s a little extra incentive for buyers.

You also want to watch for a record of dividend increases over time. Companies that do this are often some of the market’s most stable stocks. 

In late December, the company issued earnings guidance for the full year of 2021. It now expects revenue to fall in a range between $740 million and $750 million, which would be annual growth of 11% to 12.5%. That’s an increase from earlier guidance of $720 million to $730 million.

The stock rallied to a new high of $128.36 on October 26, and began declining after reporting earnings. While the selloff is fairly steep, the stock has not yet undercut its prior structure low of  $77.38. That kind of price capitulation frequently results in fresh money coming in, as institutional investors buy shares at a lower valuation.