E-commerce service provider Shopify Inc. (SHOP) reported third-quarter 2022 revenue and adjusted gross profit of $1.40 billion and $$681.80 million, up 22% and 11% year-over-year, respectively. However, its bottom line declined significantly amid the high inflationary environment. The company’s operating loss came in at $45.10 million, compared to an adjusted operating income of $140.20 million in the prior-year quarter.
In addition, the company’s adjusted net loss was $30 million and $0.02 per share, compared with an adjusted net income of $102,80 million and $0.08 per share a year ago. Moreover, SHOP is increasingly burning cash. As of September 30, 2022, it had $4.90 billion in cash, cash equivalents, and marketable securities versus $7.80 billion as of December 31, 2021.
SHOP’s shares have slumped 71.8% year-to-date to close the last trading session at $38.40. The stock is currently trading 78.2% below its 52-week high of $176.29, which it hit on November 19, 2021. The decline can be attributed to its weak fundamentals and the broader market rout.
SHOP’s POWR Ratings reflect poor prospects. The stock has an overall rating of D, translating to Sell in our proprietary rating system.
Therefore, investors should consider the relatively profitable internet stock Shutterstock, Inc. (SSTK) instead. SSTK is the leading global creative platform for transformative brands and media companies.
SSTK delivered improved financials despite the macroeconomic headwinds. Its revenue increased 5% year-over-year to $204.1 million for the third quarter of fiscal 2022. Also, its non-GAAP EPS grew 42.9% year-over-year to $1, beating the consensus estimate by 7%.
Furthermore, the company’s subscribers count increased to 607,000 compared to 336,000 in the prior-year quarter, while its subscriber revenue rose to $87.70 million from $81.5 in the third quarter of 2021. Its image collection expanded 9% year-over-year to more than 424 million images, and its footage collection grew 17% year-over-year to over 27 million clips.
SSTK shares have gained 3.1% over the past month to close the last trading session at $52.85. Moreover, Wall Street analysts expect the stock to hit the average price target of $65.67 in the near term, representing a 24.3% upside potential.
Here is what could influence SSTK’s performance in the upcoming months:
Recent Positive Developments
On October 25, SSTK announced its partnership with OpenAI and led the way in bringing AI-generated content capabilities for its customers and contributors. “With this partnership, Shutterstock positions itself at the forefront of emerging technology -- supercharging ethical, creative storytelling for all,” said Paul Hennessy, SSTK’s CEO.
Also, in the same month, SSTK partnered with FILMPAC, a premium footage boutique, to bring FILMPAC’s premium cinema-quality video collection to Pond5 and Shutterstock. “We strengthened our leadership position in video content by progressing with the integration of Pond5 and securing an exclusive relationship with Filmpac for cinematic quality video,” said Paul Hennessy.
Solid Financials
SSTK’s revenue came in at $204.10 million for the third quarter of fiscal 2022 ended September 2022, up 5% year-over-year. Its income from operations increased 29.4% year-over-year to $28.69 million. The company’s adjusted EBITDA grew 26% from the year-ago value to $56 million.
Furthermore, the company’s net income increased 44% from the prior-year period to $23 million.
Favorable Analyst Estimates
Analysts expect SSTK’s EPS for the fiscal 2022 fourth quarter (ending December 31) to come in at $0.96, indicating an increase of 25.1% from the prior-year period. In addition, the company’s EPS for the fiscal year 2022 is expected to rise 8.8% from the previous year to $3.79. Analysts expect its revenue for the current year to grow 5.4% year-over-year to $815.06 million.
Moreover, the company has an impressive earnings surprise history as it has topped the consensus EPS estimates in three of the trailing four quarters.
High Profitability
SSTK’s trailing-12-month gross profit margin of 62.64% is 26.8% higher than the 49.40% industry average. Its trailing-12-month EBIT margin of 12.69% is 42.50% higher than the 8.91% industry average. Also, the stock’s trailing-12-month net income margin of 10.53% compares to the industry average of 4.51%.
Moreover, SSTK’s trailing-12-month levered FCF margin of 13.28% is 72.1% higher than the industry average of 7.71%. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 12.40%, 10.23%, and 10.23% compare to the industry averages of 5.81%, 3.70%, and 2.14%, respectively.
POWR Ratings Reflect Promising Prospects
SSTK has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SSTK has a B grade for Quality, consistent with its higher-than-industry profitability metrics. In addition, the stock has a B grade for Growth, in sync with optimistic analyst estimates.
SSTK is ranked #3 of 29 stocks in the Internet-Services industry.
Click here to access SSTK’s POWR Ratings for Value, Momentum, Sentiment, and Stability.
Bottom Line
SSTK’s revenue and net income have increased at CAGRs of 8.1% and 41% over the past three years, respectively. Moreover, the company is well-positioned to benefit from its multi-asset product offerings, continued momentum in Shutterstock Studios and Shutterstock Editorial, acquisitions of PicMonkey, Splash News, and Pond5, and strategic partnerships with OpenAI and Filmpac.
Given its robust financials, solid revenue and earnings growth estimates, and higher-than-industry profitability, it could be wise to invest in this internet stock instead of SHOP.
How Does Shutterstock, Inc. (SSTK) Stack up Against Its Peers?
SSTK has an overall POWR Rating of B. Also, one might want to consider investing in other Internet-Services stocks with a B (Buy) rating: Perion Network Ltd. (PERI), Liquidity Services, Inc. (LQDT), and Points International, Ltd. (PCOM).
SSTK shares were unchanged in premarket trading Tuesday. Year-to-date, SSTK has declined -51.81%, versus a -15.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
Now Is Not the Time to Buy Shopify Stock. Try This Internet Stock Instead StockNews.com
