We came across a bearish thesis on Shutterstock, Inc. (SSTK) on Twitter by Fierce__beast. In this article, we will summarize the bears’ thesis on SSTK. Shutterstock, Inc. (SSTK)’s stock was trading at $32.55 as of Nov 4th. SSTK’s trailing P/E was 31.91 according to Yahoo Finance.
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SSTK presents a compelling short opportunity for several reasons that point to its deteriorating financial health despite what might appear as an attractive EV/EBITDA ratio. The company’s free cash flow per share, derived from EBITDA, has been weak, as evidenced by a negative $13.7 million in operating cash flow after accounting for capital expenditures and acquisitions over the last ten quarters. In the last two quarters alone, stock compensation has significantly diluted free cash flow, with 37% of adjusted net income attributable to this expense. Furthermore, 26% of adjusted net income has come from adding back amortization, reflecting the impact of SSTK’s aggressive acquisition strategy aimed at achieving long-term growth goals. However, this strategy appears problematic, especially following the recent acquisition of Envato, which, despite its focus on website design, has underperformed historically, raising concerns about the potential for an accretive return on investment.
SSTK’s top-line growth has largely been driven by acquisitions, a trend that may not continue, as management has indicated a plan to maintain these costs as recurring expenses for the next several years. This reliance on acquisitions, combined with a gradual decline in subscriber numbers and revenue per subscriber metrics, signals a troubling trend that management has not adequately addressed. Instead of recognizing the adverse effects from competitive pressures, particularly from AI-driven alternatives like Adobe and Canva, management has attributed these issues to pricing models. Analysts believe that the company’s earnings per share (EPS) estimates are overly optimistic, projecting a more realistic EPS of around $1.80 per share compared to the consensus estimate of $5.00 per share for 2025. This adjustment places the forward price-to-earnings ratio closer to 18x rather than the projected 7.3x, indicating significant downside potential as SSTK could easily see a valuation drop to a 10x P/E, aligning with an approximate target of $18 per share and suggesting a potential 50% downside from current levels.
Furthermore, data from ALTD shows a notable decline in e-commerce sales that contradicts management’s assertions, further validating the bearish thesis. Concerns regarding management integrity are heightened by prior misrepresentations about the performance of their e-commerce segment, which raises questions about the reliability of their segment reporting and overall transparency. These factors collectively suggest that SSTK is at a critical juncture, reinforcing the case for a short position in light of the deteriorating fundamentals and management’s failure to acknowledge the broader challenges facing the business.
Shutterstock, Inc. (SSTK) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 19 hedge fund portfolios held SSTK at the end of the second quarter which was 20 in the previous quarter. While we acknowledge the risk and potential of SSTK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SSTK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.